This article looks at forex news and how it affects trading on the forex market.
There are two basic methods through which a forex trader can analyse the foreign exchange market – fundamental analysis and technical analysis. When using technical analysis you will be studying market movements using forex charts. When using fundamental analysis you will be reading forex news releases to predict the trend direction. If you choose a fundamental analysis strategy, then you need to be aware of the different economic indicators available for use. You should also understand how you can use forex news to experience profitable trades.
Defining forex news and news releases
Forex news refers to any news releases that influence currency price movements on the foreign exchange market. Generally, the news revolves around global events such as political instability or changes in a country’s economic standing. By determining the reaction to these forex news releases, one is able to predict the future movements on the forex market. If the reaction is positive then there is a greater chance of profitable trends.
Using the forex news releases?
Many traders will make the detrimental error of reviewing forex news releases in isolation. For example, if the non-farm payroll report is being released traders will look at this report exclusively and base their market predictions on this. While you must consider the non-farm payroll report, you should also examine the context of the report. It is important to remember that all news impacts the forex market and thus must be viewed as interconnected.
Understanding the forex news releases
Once you have established that reading forex news is the analysis method for your trading style, then it is important you personalise your research. The most effective technical analysis traders will use indicators they are comfortable with and find easy to navigate. This ensures simplicity and a greater chance of profits. This approach is essential for success in fundamental analysis as well. You should establish which releases you are going to be working with and how this impacts your forex trading strategy. This is discussed below.
Some traders have a stronger working knowledge of economic news and how this affects the foreign exchange market. If you are one of these traders then you should consider utilising on economic news releases. This will limit the number of trading opportunities available to you, but it will allow for a focused strategy and greater chance of profit with the opportunities you do trade. This trading strategy does require patience as economic news releases arrive approximately once a month thus trading may occur only once a month. If you are considering a short-term trading style then this would not be suitable; however if you are looking at long-term trading then using economic forex news releases would be a useful trading strategy.
Fundamental short-term strategists would be best suited to using all forex news releases. As you will be dealing with news on a daily basis you will have a great amount of trading opportunities. However, you must remember that not all releases are relevant to your trading pair so you will have to filter between the important and insignificant items.