How to trade on Forex news, or is it better to ignore them altogether?
We will consider this issue in today’s article, and I can guarantee that by the time you finish reading, you will have a fully new understanding of how to approach news trading.
However, not everyone will like my approach. The methods and concepts I discuss here may not be suitable for those who use fundamental analysis in their trading.
However, if you want to rely solely on price action, as I did, this information will be useful.
How to trade on Forex news without reading it?
I trade on the news, but I don’t read them.
Nonfarm payrolls (NFP), CPI, central bank press conferences, and even rate decisions.
Of course, I know when important events are scheduled.
This allows me to organize my trading in a way that does not expose my deposit to adverse market movements.
But I never analyze the news to form my opinion about the market.
When it comes to news trading, there are three groups of traders.
- The first are those who obsessively follow the results of the nonfarm payroll report or rate decision. With this information, they immediately enter the market.
- The second group includes traders who try to outsmart the market by buying or selling before an important event.
- The third group, of which I am a part, only uses price and chart analysis to form their opinion.
Price action traders stay on the sidelines and wait for the dust to settle.
Then, when all the dust is gone, we move to higher timeframes and make a decision.
And it doesn’t have to be buying or selling. Once the dust settles, we often do nothing.
The 200-point pin bar that appears at the support level due to an unexpected rate increase is just a manifestation of the event itself.
So, when we buy this pin bar, we essentially buy the result of this unexpected rate increase.
Do you understand what I mean?
Read the chart, not the news.
Do you know why I prefer price action to any other trading method?
Because this trading method tells me the result of any Forex news event.
Moreover, he paints an objective picture of what just happened.
Instead of trading what might happen or should happen, I trade what happened.
This is a much more reliable approach.
And when you combine price action signals with daily charts, they become even more powerful.
Market participants have enough time to make trading decisions when the session closes.
In the end, the opinion of the market reflected in the chart is the only thing that matters.
The market doesn’t care what you think and certainly doesn’t listen to your opinion.
I want to delve into what I just wrote here because this is a problem for most new traders.
Individual opinions are what get traders in trouble every time.
It’s also selfish.
Face it; opinions are not a scarce commodity in the market.
One of the most common questions traders try to figure out is whether a given news event will be positive or negative.
One of the most popular topics seems to be central bank rate decisions.
Traders want to know how interest rates change at the next meeting.
However, it doesn’t matter what I think or what you think.
The market reaction is the only thing that matters.
The same question is asked about past events.
For example, the nonfarm payroll report comes out when the data increases, but the US dollar weakens.
And many traders are wondering why the dollar is falling.
If you’re a price action trader, it won’t matter why it crashed.
So, you enjoy reading charts and studying different price patterns but forget about trying to figure out how the news will affect the market.
Just pay attention to the price action.
That’s all you need. And don’t try to figure out why the market did what it did when news events come out.
How do I trade the news?
Before making a trade, I always check the economic calendar.
When I do this, I’m looking for news that could affect any currencies I’m about to trade.
However, with so many events happening each week, how can you trade without worrying about volatility?
The first thing to know is that I only pay attention to events with strong and medium impacts on the market.
This sorting eliminates about a third of the news in the calendar.
I don’t pay attention to low-impact news because it doesn’t cause much volatility and is, therefore, not worth paying attention to.
My general rule for trading ahead of a major event is to wait at least 48 hours.
Therefore, I will remain out of the market if an interest rate decision is made within the next 24 hours.
Here are the most important events that I pay attention to:
- Nonfarm Payroll (NFP)
- Fed Rate Decisions
- Major referendums (sometimes held on weekends)
- US elections
This is not a complete list, but any of these events will keep me out of the market no matter which currency I consider.
Please note that most of the events described above affect the US dollar.
And while an event like non-agricultural payroll will have the biggest impact on a pair like EURUSD or GBPUSD, it can also cause volatility in cross pairs.
Even the risk-sensitive Japanese yen is not immune here.
Summing up
If you are thinking about how to trade Forex news and want to become a profitable price action trader, don’t get hung up on them.
All you need to know is when the events are happening, as well as assess their potential impact on the currencies you are trading.
Everything else is just noise that is not worth your attention.
Instead of reading the news, learn to understand the price action on your charts.
This way, you will get the market’s interpretation of the event, not your own.
This will help boost your confidence in any trade setup that may result from the news.
Never open a trade without first checking the economic calendar.
I am safe if there are no significant news events in the next 48 hours.
Otherwise, I will wait until things settle down before considering the next trade opportunity.