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Forex News Trading Isn’t Newbie Friendly

admin on July 19th, 2010

One of the first strategies learned by the Forex newbies is following the news and trading in accordance with the various news releases that can be considered related to the currencies and the Forex market. The good examples of such news are the macroeconomic reports, interest rate changes, political news and corporate releases. Two main problems arise when the newbies try to trade on Forex news:

1. Trading too late. Usually the main reaction to the news (if they aren’t too important and pivotal) goes out during first several minutes after release. New traders often react to the news hours after release (and the lack of the good source of the Forex news isn’t the least reason for that). They enter after the main price action has gone and the correction is setting up. That’s quite a bad thing to do.
2. Trading inside the news. Some newbies try the other extreme – they try to trade immediately after the release. This approach has a serious disadvantage as only few brokers will offer smooth execution during news releases or won’t widen the spreads by some unbelievable amounts of pips (and the newbies are usually quite bad at finding good Forex brokers to trade with).

So, what should be done if you are Forex newbie, want to profit from the Forex news releases but don’t want to get beaten by the losses that usually occur as a result of the mentioned problems? The answer is quite complex. I’d recommend new traders to stay away from the short-term news trading for quite a long time before they get some real experience. Trading news in the long-term (of course, the news should have a long-term effect on the markets) is another story but it’s rarely called news trading, usually it’s called long-term fundamental trading and can be good even for newbies. But if you really want to try yourself at news trading, you first need to learn about the pending orders in Forex, learn to set them up and understand how different Forex news affect the currency pairs. The main idea here is to set up the pending orders before the news release and hope that they will get triggered before the mad reqoutes and spreads start to interfere.

For example, you can set the pending orders to buy and sell 10 pips above the local maximum and 10 pips below the local minimum on EUR/USD before the U.S. non-farm payrolls release with the target for some 20–30 pips profit. There is a high probability of triggering both the entry and target levels with such an influential news release and you stay safe as the entry orders are likely to be hit during a period of rather slow market, while the exit orders can be triggered even with wide spreads as the price usually goes much farther than 30 pips after the NFP reports.

You can also use the following MetaTrader expert advisor to trade on news releases (but it isn’t very newbie friendly): Amazing Expert Advisor for News Trading.

If you want to share your thoughts about Forex news trading or want to ask some newbie question about positioning trades to profit from the news releases feel free to use the commentary form below.