Trading the news sounds simple. You read the news and make your trades based on the current events and predictions – right? In a nutshell yes – by trading on news reports, you are essentially basing your investments on economic data.
The truth is that trading on news events and economic reports can be more complicated than it sounds. Traders who use financial announcements and reports to buy and sell on the markets deploy various strategies and approaches. When it comes to trading the news, the place to start is the forex market.
Forex Trading: Trading The News
Global events move the markets, and the forex market is the best example of this. The foreign exchange is open 24 hours a day, five days a week. Every day, critical data is released that impacts at least one of the eight major currencies traded on the forex market.
- U.S. dollar (USD)
- Euro (EUR)
- British pound (GBP)
- Japanese yen (JPY)
- Swiss franc (CHF)
- The Canadian dollar (CAD)
- Australian dollar (AUD)
- New Zealand dollar (NZD)
The country with the most significant influence over the forex market is, unsurprisingly, the United States (remember how the whole world watched the 2021 American Election?). The most widely traded pair is EUR/USD: the currencies of the world’s two biggest economies. Yet each country releases key information regularly. These could relate to inflation, unemployment, retail sales, or interest rates.
How Does It Work?
Of all the financial markets, forex responds most to macroeconomic data. In other words, the broad strokes of global monetary events and not just the nuts and bolts of one economy. There is aggressive “hawkish” news that increases value (say a central bank is driving a currency pair up) and more peaceful “dovish” news that can devalue a currency (the forex market is one place you don’t want peace).
It is harder than it sounds
Traders and investors follow an economic calendar and open and close sales based on the release of this critical information. There is no single economic calendar forex traders use. Keeping your finger on the pulse of the global financial markets is hard enough with just the official reports. Trading the news also means considering “whisper numbers” (any unpublished forecasts or unofficial announcements) and revisions to previous official releases.
Directional and non-directional bias
So, how do you trade the news? Forex traders will follow any information that could influence the markets, from trade balances to agricultural reports that could impact global supply chains. They can then bet on currency pairs based on predictions of where the market is headed.
When it comes to news trading, there is no hard and fast formula. FX traders will generally use one of two approaches:
- Directional basis
- Non-directional basis
Quite simply, trading the news with a directional bias means when news breaks, you expect the markets to move in a particular way. Trading without a non-directional basis is even simpler: breaking news will cause the markets to move, full stop. You don’t base your trades on a direction, just the movement itself.
“Buy on the rumor, sell on the news”
FX traders often use this phrase as a reminder that rumors can be just as important as facts when it comes to playing the markets. This is why the “whisper reports” we talked about earlier are so important. Just because the unemployment figures were lower than expected does not mean that currency value will go up in the forex market. The opposite can sometimes be true.
What Tools Do You Need?
For a successful forex news trading strategy, the right broker is vital. TradeOr is a user-friendly brokerage platform with no hidden fees and zero commission. If you are interested in news trading, check out ChartIQ and TradingView, both available for free on the TradeOr platform. These integrated features arm traders with the information and data analysis tools to better navigate the markets.