The Best News-based Forex Online Trading Strategies
Political and economic news is a powerful source of fluctuations in global financial markets. Even rumors about events such as the fall in central bank interest rates, the demands of governments and large corporations, a sharp rise in inflation and unemployment, or the worsening international situation invariably cause outrage in exchanges.
Market volatility over the past decade has led many investors to question the wisdom of the “buy and hold”strategy. Within this framework, news trading has become an integral component of many traders ‘ investment plans. While long-term investors are rarely allowed to apply news-based trading strategies, day traders do so many times during a session. So now we can say with confidence that learning to trade in the news is an essential skill for every trader.
Why trade the news?
The impact of news on the market is uneven. Some segments react more strongly and vice versa. Therefore, one of the main principles of successful news trading is to find the event that will have the greatest impact on the market. The more significant the news, and the more accurate it gets to the right segment, the more volatile the assets will be after publication.
You can make decisions in advance and even place pending orders to open long or short positions.
Another vital principle of news-based trading strategies is to buy rumors and sell facts. It is a challenge for beginners who do not yet have enough experience to understand the pricing mechanism before the publication of forecasts and after the publication of actual data.
The basic principle of trading in the news is to look for an event that can arouse the situation in a particular market. For the convenience of traders, the news is sorted and each is assigned a different rating. The more important the news is, the more volatility it can cause. Therefore, the top of the rating receives the most “explosive”news. However, each trader can perform their own analysis and decide from which trading event in the news will be most productive in their case.
Each news affects the market in its own way. But, in fact, it does not give a great advantage to traders who have understood the intricacies of working with fundamental analysis. Of course, knowing the details of a country’s economy with a rough understanding of what will be published tomorrow or the next day’s central bank refinancing rates or unemployment rate, can give a fairly clear picture of price movements. On the other hand ,the ” hot ” news about a major bankruptcy or the resignation of the responsible person can change the situation exactly on the opposite side. Therefore, the success of news trading depends on the ability to track important news in advance to know exactly when it will be published. This approach will allow decisions to be made in advance by placing pending orders.
Commercial market news and different types
We are sure you know that the news in the exchange trades can be divided into two groups: expected (scheduled) and unexpected (unscheduled). Of course, you can’t trade successfully unless you know what the difference is between them and how to trade with each of them. While it seems obvious and logical, consider both, so you can adjust your news-based trading strategies if necessary.
The news trade that is scheduled
This type of news can be considered the simplest since the date and time of the press release is known in advance. Of course, the information to be announced is not known, it is still widely used by traders with the help of analyst forecasts and market sentiment. Let’s take a look at the different scheduled news that can be a great tool for traders to take advantage of.
Economic data points
Economic data points
Speaking of the expected News, the first thing that comes to mind is the Forex economic calendar for traders. It reflects the most important macroeconomic indicators (events in different countries, scheduled time of publication of press, analytical forecasts, previous values) that affect the quotes of major and correlate with them assets.
In macroeconomic terms, much depends on the country:
News trading in the UK News is linked to growth in retail prices and sales, Bank of England claims, unemployment, GDP growth and the Consumer Price Index.
In stable Germany, the strongest indicators are the ZEW Economic Expectations Index and the Business Climate Index (Ifo), both composite indicators. The announcements by the European Central Bank also resonate.
UU., Canada, New Zealand and Australia, unemployment, consumer prices, refinancing rate, GDP and CPI are all top priorities.
It is essential to keep track of the news in advance to know when a publication will be launched and on what trading instruments it will affect. This way, you can make decisions in advance and even place pending orders to open long or short positions.
The economic calendar is one of the most vital tools of a Forex trader. Regardless of whether to trade in the news or avoid it, before each trading session, open an economic calendar and pay attention to upcoming events that may affect the market.
Company earnings announcements
All companies whose shares are listed on stock exchanges must publicly disclose quarterly and annual reports so that each investor can freely see the current state of the company.
When companies report their quarterly earnings, Wall Street, investors and shareholders often pay close attention to this.
That is why the profit season of companies is the maximum trading period. It is possible to open highly profitable positions by reports because you will know in advance whether the shares will rise or fall.
For investors, companies ‘ quarterly financial statements are the most valuable source of data. Information on the profit period helps to track the dynamics of asset movement separately for each issuer and assess the prospects of the market as a whole.
For example, after the release of the financial report by Google, whose indicators showed stable revenue growth throughout the quarter, the shares immediately increased in price by about 3%. After analyzing the figures and seeing a consistently good result, the investor makes sure that the company’s assets do not depreciate, which means that they can be bought.
If the company surprises analysts and meets expectations, stock prices will rise, and vice versa, if the company talks about losses and decreases, the shares will fall in the coming days or months.
Economics and politics are very closely intertwined, and sometimes certain statements can drastically affect the exchange rate.
However, the country’s elections are no less interesting and exciting, as they can have a strong impact on the country’s future economy by changing the direction vector.
Elections are the most important destabilizing factor that shakes the political and economic situation in the country. In the run-up to elections, ruling parties are prone to populism, which is not economically justified to tempt voters.
It is at the time of the elections that the country, to put it mildly, finds itself in a state of shock, since one political system can replace another, and the country is completely powerless. That is why at the time of elections, the national currency tends to fall and weaken, and this is especially evident in countries such as the United States, Germany and Japan.
In the fall of 2020, the US presidential elections will be held. The results can have a serious impact on financial markets: depending on the policy promoted by the president during the campaign, the price may rise or, conversely, companies in certain sectors of the U.S. economy may become cheaper.
For example, let’s see what happens if Donald Trump wins.
From such a result, the actions of technology companies can benefit. During his presidency, Donald Trump repeatedly criticized the activities of Facebook, Google or Amazon, but never authorized serious proceedings against them. The quotes of the three companies mentioned increased by 70% after the election of the current head of the White House, so if there was a negative rhetoric from Trump, it certainly did not affect the activities of the companies and their value.
In turn, other candidates, Bernie Sanders and Elizabeth Warren, call for depriving technology companies of their existing influence. Facebook and Instagram, for example, suggested dividing the internet giants into several smaller companies, as well as canceling some major mergers, such as the merger of Amazon and Whole Foods or Facebook and Instagram. Other Democratic Party candidates also spoke along a similar line. In other words, Facebook, Google or Amazon can expect consequences if someone other than Trump wins.
Another company, for whose documents it would be positive if Trump remains, is Exxon Mobil. Trump is skeptical about the problems of climate change. If the current US president is re-elected, there is a possibility that the US Transition Program to clean energy and abandon the traditional will be slower. It will be perfect for oil companies.
Operate with unscheduled or unexpected news
This category includes news about such things as terrorist attacks, natural disasters, acute geopolitical outbursts, the emergence or resolution of military conflicts, etc.the news of such a plan is often unfavorable and contributes to a sharp drop in prices. Depending on the situation, it will help eliminate the asset, which will soon depreciate sharply, or vice versa, to capture the moment and buy an unfairly depreciated asset, the price of which will rise again.
Black swan events
It is an abnormal event that is impossible to predict and subsequently has enormous consequences. This event has a tremendous impact on the market and fundamentally changes the future.
The events described in the black swan theory are extremely unlikely. It is difficult to predict these incidents. They are so significant that they can affect the entire economy, society and people.
Examples of black swan theory can be found outside financial markets. No one could have foreseen that the Twin Towers of the World Trade Center would be headed on 11 September 2001. The consequences were terrible: more than 2900 people were killed in the terrorist attack, and the United States had to launch a massive campaign for the war on terror.
Black swan events can also be political. Results such as Trump’s victory in the 2016 presidential election, not to mention the fact that Britain voted in favor of withdrawing from the European Union
Union in the same year, also related to the black swan theory.
From an investment perspective, there are several ways to benefit from the Black Swan and avoid losing portfolios when it happens:
Accept the fact that black swans sometimes happen.
If you study the market thoroughly, you will understand that black swan events are common. When you realize it, such disasters will no longer be a surprise to you, and you can calmly and rationally decide what action to take.
Take advantage of the opportunities offered by black swans.
If the stock market collapses and stock prices fall due to an unpredictable event, it can be profitable for investors to invest in sustainable companies. When the assets finally recover, it can be advantageous to sell what you bought at a low price.
Diversify your portfolio.
Investors who have invested all their money in an asset are the ones who suffer most from the consequences of the Black Swan. By allocating capital between several investments with different levels of risk, you can mitigate the results of an unexpected recession.
Significant changes in supply or demand
Financial markets, and not just financial markets, are driven by the supply-demand ratio. To make it more understandable, let’s look at the example, so you’ll get the idea of how to make the most of the changes in this balance.
The launch of announced quantitative easing programmes is an important factor contributing to the rise in gold prices. The additional money allocated to support the economy goes to markets, including stocks and commodities, increasing demand for assets. Banks in the current uncertainty about the impact of the pandemic are not ready to take the risks of lending to businesses and prefer to invest in low-risk assets. While in the conditions of zero interest rates, l
Trading expectations – an excellent strategy option for long-term investment. You won’t make a mess by relying on the events of the economic calendar, but you can analyze them competently and properly;
Enter a “cold” market, that is, start trading a few hours later after the news comes out. At this time, the market will already have time to think about all the innovations and new data to recover and move evenly. It is recommended to combine this approach with patterns and candle figures. In this case, on the eve of the press release, opposite orders are placed: buy and sell. At the time of publication, the profit may increase significantly and cover even the loss in the other.
Another way is to identify the broker by consolidating the market before the news and opening a position towards the broker break. Those who feel confident and already have experience in trading underlined assets, can try to predict the direction and set an order in advance to capture the maximum price movements, but it is not an easy thing. One suggestion may be that the overall currency trend is not on the daily chart before important news is published; it is very likely that the market has made an approximate expectation of the news in advance and shop in the opposite direction. Naturally, this is not mathematical, and often there are exceptions to this “rule”, but according to experience, this ratio at least increases the likelihood of making the right decision, which in itself is very useful for any business strategy.
To place a long position, the first thing you need to do is locate an asset that is about to shoot after a press release. Then select the time frame D1 or H4 and place the EMA and Stochastic indicators on the chart. Now look at the indicators, so the EMA is above 50 and Stochastic to indicate that the asset is oversold and the line is below 20. Make use of any technical tool to determine the points to enter and exit the market.
Make sure you implement proper risk management so you don’t lose everything at once in case the market doesn’t react as expected.
As a result of the COVID-19 outbreak, the US government has launched a stimulus package to stimulate business activity. Iy could not but caused the rise in global stock markets. The most preferred actions were those of the technology giants, mainly because they were the least affected by quarantine measures and benefited from the quantitative easing programme.
As a result, one of the U.S. stock indices, the S&P500, showed much better than the others.
Once you have the signals of the indicators to enter the market, look for confirmation of other tools. In addition, establishing a Stop-Loss is mandatory in terms of risk management. It will help you control risks in case the market moves against your trade.
You can use these tips to develop your own news-based trading strategies
Negotiating the news-Short
To place a short position, the first thing you need to do is locate an asset that is about to fall after a press release. Then select the time frame D1 or H4 and place the EMA and Stochastic indicators on the chart. Now look at the indicators, so the EMA is below 50 and Stochastic to indicate that the asset is overbought and the line is below 20. Make use of any technical tool to determine the points to enter and exit the market.
Make sure you implement proper risk management so you don’t lose everything at once in case the market doesn’t react as expected.