Lesson 1: How Forex News Trading Works

The news has immense power in moving the forex market. Basically, trading the news involves a heavy and special attention to; 

1. Economic Releases (Central Bank Policy, GDP, etc.) 
2. Political Events (Government Speeches, Elections, etc.) 
3. Geopolitical Events (War, Pandemic, etc.) 

In this lesson, you’ll understand what makes news a powerful market mover and the best practices to maximize news releases for success. 

Lesson Highlights

• One core aspect of fundamental trading involves trading news releases concerning the USD and the currency they’re trading. It includes news concerning the economy, geopolitical conflicts, and political events.
• News events concerning central bank releases are historically considered the major market mover, with an average of 150-pip movement per release.

News Makes the Forex Market Move

“Buy the rumor, sell the news” – Every news trader out there.

Aside from trading the technical indicators, profitable traders see news releases as the external forces that affect the market movement.

When you trade forex, you basically trade a currency against its partner currency, right? You’re speculating about the price movement of the pair, and the price movement is highly dependent on the economy of the traded currencies.

With that, it’s only logical for you to be on the constant lookout for the major news releases concerning your currency.

If you happen to trade the news properly, your position will benefit from the magnified pips movement the news brings.

Here are the pieces of news that have the most impact on forex and the average pip movement during these news releases:

Note: The market often moves in anticipation of the event and not as it happens. Make sure to be always staying market news. 

How to Trade the News 

Trading the news has numerous advantages that would boost your success on the forex market.  

By taking proper trading actions on news releases, you’ll have an idea about the optimal time to execute a trade. Also, major news releases guarantee price movement, which you can use as a reference to either exit or enter a trade for profitable opportunities.  

But how do you make sure that you’re properly trading the news? Here are the three forex market fundamentals you must look at.  

1. Economic Factors 

A strong economy simply means a strong currency.  

Why? Well, the strength of an economy attracts international investments and interaction with multinational banks and institutions. These factors greatly pump up the strength of the country's currency.  

When trading forex, you must always look at the economic status and releases of the currencies in your pair. This way, you can have a balanced reference on the health and possible movement direction of your asset. 

Here are the two main tips when factoring the economy of the currencies when trading forex:  

Pay Attention to U.S. Economic Releases 

While most market news releases move the forex market, U.S. news releases drives the most market movement. Why? 

Well, well about these two things: 

1. The US owned the USD. 
2. The major pairs are the most traded pairs in the market.  

Saw the relation? Because the US owned USD and its currency is the primary currency in major pairs, news releases from the US have become the most watched among all. The moment the US publishes some news, you can expect the market to experience a heavy snap.  

Use Economic Calendar 

An economic calendar is a useful trading tool that lists down major economic releases of major economic countries. The economic releases often included in the economic calendar are; 

This includes economic data releases from;  

• Central Bank Meeting 
• Economic Report 
• Changes in Monetary Policy 

An effective economic calendar must have the date, time, place of publication/event, currencies involved, importance in the market, and the forecasted results. 

2. Political Events 

Trading the news is more than just the economic indicators. Another vital market mover is the political events, such as trade policy changes, elections, political unrest, and protests.  

Essentially, political events include occurrences or development concerning governmental policies, leadership, and decision-making.  

When these political conditions, you can expect the market volatility to climb up. The factors that may influence the market sentiment to these political events may include;  

• Historical Precedents 
• Market Patterns 
• Trader’s Risk Appetite  
• Media Perception 

3. Geopolitical Events 

The interaction between two or more nations and powers also moves the market significantly. When geopolitical events occur, you can expect the market to move.  

Look at the war between the Russia and the Ukraine. This geopolitical event had caused rattled to the financial market. Essentially, this war has resulted to the depreciation of Russian Ruble.  

Here are the other geopolitical events that drive up market movement:  

• Pandemics 
• Wars 
• Geopolitical Alliance 
• Territorial Disputes 

News Trading and Market Sentiment 

News trading and market sentiment are closely related because significant news events often influence market sentiment, and market sentiment, in turn, can impact the reaction of traders to news. 

When important news is released, such as economic data or geopolitical developments, it can shape market sentiment by providing new information or insights into the fundamental factors driving the market.  

Positive news bolsters market sentiment and drives bullish sentiment among traders. This includes strong economic data or optimistic geopolitical developments, 

Meanwhile, negative news can dampen market sentiment and lead to bearish sentiment. Negative news are the weak economic indicators or geopolitical tensions.