News Based Trading

A major advantage of forex trading is that the forex market is open 24 hours a day, five days a week. Markets move based on news, so economic data is often the most important news for short-term movements. This is especially true for the forex market, which reacts to US economic numbers and news from around the world.

Before you develop a strategy for forex trading with news, you need to consider which news events are most relevant to forex trading and worth trading.

When trading news, you first need to know what releases are actually expected this week. It is also important to know what data is important. Generally, the most important information relates to changes in interest rates, inflation and economic growth, such as retail sales, manufacturing and industrial production.


Here are some examples:

  1. Interest rate decisions by central banks
  2. Retail sales
  3. Inflation (consumer prices or producer prices)
  4. Unemployment
  5. Industrial production
  6. Business climate surveys
  7. Consumer confidence surveys
  8. Trade balance
  9. Manufacturing surveys
    The relative importance of these releases can change depending on the state of the economy. Therefore, it is important to keep an eye on what the market is focusing on at the time. This also depends on what is happening in the world right now.

For example, interest rate decisions may be the focus at a particular time. So, it is important to stay informed and know what the market is focusing on at a particular time. News that usually drives price action and creates volatility include:

  1. Changes in central bank policy (monetary policy).
  2. Changes in government policy (fiscal policy)
  3. Unexpected results in the release of economic data
  4. Random tweets from world leaders
  5. The U.S. has the biggest market-moving news
    Markets react to most economic news from various countries, but the biggest market-moving news comes from the United States. The United States is still considered the most powerful country in the world and still has the largest economy in the world. The USD is involved in about 90% of all foreign exchange transactions, so it is important to follow the news and data coming out of the US.

Choosing currency pairs for trading the news
It is important to choose the right currency pair when trading the news. You should take advantage of the short-term spike in volatility while keeping your transaction costs as low as possible. News can lead to increased volatility in the forex market and more trading opportunities. Therefore, it is important that you trade currencies that have high liquidity. Currencies with high liquidity have the tightest spreads so you can keep your transaction costs low. The major currency pairs have the most liquidity and usually the tightest spreads.

  1. US Dollar (USD)
  2. Euro (EUR)
  3. British Pound (GBP)
  4. Japanese Yen (JPY)
  5. Swiss Franc (CHF)
  6. Canadian dollar (CAD)
  7. Australian dollar (AUD)
  8. New Zealand dollar (NZD)

The following currency pairs show the liquid pairs derived from the eight major currencies:

  1. EUR/USD
  2. USD/JPY
  3. AUD/USD
  4. GBP/JPY
  5. EUR/CHF
  6. CHF/JPY
    Spreads widen when news is released. Therefore, it is advisable to choose the pairs that have the tightest spreads. Now that you know which news events and currency pairs to trade, let us look at some approaches to trading news.

How to trade the news
The most common way to trade news is to look for a period of consolidation or uncertainty ahead of a big number and trade the breakout based on the news. You can do this in the short term or over several days. Trading the news is not as easy as you might think. The main reason is volatility. You may make the right move, but the market may not have the momentum to sustain that move.

Final thoughts
The forex market is particularly susceptible to short-term moves triggered by the release of economic news from both the US and the rest of the world. If you want to trade news successfully in the forex market, there are some important things to keep in mind, such as when reports are expected and which releases are most important given the current state of the economy.

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