This article looks at the forex news trading strategy and how to trade it on the forex market.
When entering the foreign exchange market you will notice that there are various methods for forex trading, one being the forex news strategy. Trading on the forex news is a fundamental strategy and involves the analysis of forex news releases. To utilise this strategy effectively you must have a strong understanding of the market, global influences and the forex news system. This article will detail the different aspects to forex news and how you can utilise them to become a successful forex news trader.
Recognising relevant forex news releases
The most important aspect of trading on the forex news is distinguishing the relevant items from the irrelevant ones. There are hundreds of news releases presented each day and, while all may affect the market, you must identify which impact your currency pairs. There are different methods which can be employed to determine this, but the most effective is the forex calendar.
The forex calendar is a trading tool that lists all news items released to the public. It categorises them according to impact and relevancy based on your trading. The list is presented from high impact to low impact releases. There are three types of information that appear on the forex calendar: a country’s interest rates, the retail sales figures and the unemployment rates.
The interest rates
Arguably the most important rate to review is a country’s interest rate. If the country displays a high interest rate, then the country’s currency has a strong value. This is due to foreign investors wanting to place funding into the country. However, if the interest rate were to drop then the investors will remove their funding leading to a poor economy and negative currency value.
The retail sales
The retail sales figure is usually linked to the level of employment in a country. If a sales figure drops when people are unemployed, this is due to the public having no funding to spend on retail. Furthermore, those who are employed will be hesitant to spend money due to the employment instability. If the employment and sales figures are high, this is indicative of a positive and stable economy. A positive economy will also lead to a rise in the country’s currency value.
The employment rates
The movement of a country’s employment rates can affect the economic status considerably. If employment levels are weak then the country will show instability on the market. However, if employment levels are up then the country’s currency will show high price value. A drop in employment is usually due to businesses being unable to maintain staff or hire new staff.
Trading with forex news
The forex news strategy can be utilised in two ways, reactive and proactive. The reactive forex news traders will wait for the news item to be releases to all traders. They will then observe market movements and trade with the crowd. However, proactive forex news traders will execute trades based on speculation. This type of trading is much riskier than reactive trading, but it does present with greater profits when successful.