Lesson 5 – Forex News Trading

All fundamental forex traders invest large sums of money in currencies, and if you are one of them then it is crucial to keep yourself up to date with the latest forex news.

When you are a new in this business branch you will discover that some news in the forex field will affect the entire currency market while other news will affect only some currencies. If you want success in this business than your job will be to pay attention only to that news that can affect the currencies used by you.

GDP numbers, interest rates and employment reports are considered important news for currencies. Once this step skipped you must find the reports that are really important and to watch any market reaction to these reports. At this moment patience are a must and most traders hate waiting. Waiting is important because not always currencies will react as you might expect and sometimes you will have big surprises. The second you are certain of how the currencies will react to reports you can start for your live news trade.

When making news trading you must pay attention to the forex broker you choose, because, in these volatile news times, some brokers will have a variable spread and others a fixed spread.

News Trading and Fixed Spread

The main issue here is that in some situations your price will be lower that your expectations, thus your trades will be pointless.

News Trading and Variable Spread

Variable spread comes with another problem: the spread is calculated based on some market indicators and, in some situations, the spread can be quite high. This will lead to a negative trade, even if your initial price is very good.

Because of these reasons it is very important to always know the broker’s policy when making this kind of trading. If you are not certain about hat broker to choose, you can always opt for a demo account and later, if you feel confident and know the broker’s policy, can switch to a standard account. All reputable forex brokers can give you access to demo systems that are very similar with the real one.

You can win a lot of money from news trading but, in the same time, you can lose a lot too, especially when you underestimate the reports and their impact on currencies.

News trades are recommended only after you are familiar with trading and you have accumulated some experience. We admit that some traders made profit from news trades even if they were newcomers, but this is rather an exception than a rule.

Market Sentiment

This refers to the general opinion or attitude of the market. If day after day US Dollars are sold then, inevitable the market sentiment about dollar will be negative. This can lead to opportunities if you want to trade dollars, for example.

It is a good idea to keep your trading along with the market sentiment. Unless you are some kind of forex expert, trading against the trades can lead to big looses.

Market sentiment extremes

In general, there will come a moment when all traders are on the same side as the market sentiment. This occurs mostly because most traders already made up their mind or they already made their trades. Basically, after this point it won’t be long until the market will turn point. Of course, no one can predict the exact moment, but it will definitely come.

Once all trades follow the market sentiment, then no trader can continue the trend. For example, of all traders buy dollars and no one sells, then the trend cannot continue because there is no seller, and vice versa. At this point, most traders will reverse their directions.

Once the direction is flipped, some traders will try, once again, to go against the market sentiment in their quest for money. This will be done over and over until they will consider that the trend is done and thus they will flip directions once again.

You can choose any strategy you like, but it is very important to analyze the reports well and to see what the market sentiment is. Going with the market or against it can lead to wins and losses.