News Trading Strategy For Forex - Finance

News Trading can be a specialized approach to trading that takes advantage of the volatilities that occur through release of high-impact news .. Every Single major economy produces its economic indicators such as Gross Domestic Product, Retail Sales, Consumer Price Index, Short Term Interest Rate, and so on. .. routinely, and the majority economists will attempt anticipate the results of those releases, through combining these predictions and averaging them out, we now have what is called- consensus expectations.News trading usually takes the predicted numbers, or the consensus expectations, and compares it with the actual release number from the official sources, and if the prediction is incorrect by a big margin, market will answer immediately. .. and by zero in your trading on this surprise, news traders can limit the time put in trading, the risk associated with trading, as well as, improve the potential for earnings in the process.Needless to say in order to fully und erstand news trading, we must build up your own Forex Strategy. You have to understand the assumptions of news trading before practicing this kind of trading, simply because when with anything in life, news trading is not really absolute, and there exists a margin for error as the market could also be influenced by other reasons such as the risk sentiment, order flows, long- term and short- term fundamentals, and let us not forget, the technical outlook of the foreign exchange pair.The first assumption in News Trading is that market is at balance. Generally it implies that market has already priced in everything that has happened and will happen up to the point of the news release. In the event the news release turns out to bea big surprise, then the market ought to correct itself in the correct direction and attain that harmony again. For example, if the news is positive for United States Dollar, then we should expect United States Dollar to gain following the news, so we s hould BUY United States Dollar.The second assumption in News trading is the fact that market usually exaggerates in its actions. Compare it to the term "snow ball" effect as when market begins to push, traders will want to joining in the action, hence causing the market to over move This can be quite correct as we can often see the currencies market driven by high impact news sometimes for hours or even days. If that is not viewed as market exaggeration, then most likely nothing is.Finally, news trading assumes that the market will push when a particular degree of shock is reached. Of course, this so- called surprise level is based on historic data, but the presumption is that if for a specific news event, let's say the Interest Rate release, is different from the forecast by . 25%, then the market will shift 100 pips minimum. Therefore, let's say if the ECB, or the European Central Bank, releases its interest rate at 2. 00 Percent in which the market is expecting a 2. 25 %, we should see traders selling the Euro right away by at least 100 pips as a matter of fact, if this ever occurs in the real market, I believe 100 pips may well be on the low estimate news like that could move the market by 200 or even 300 pips very easily.

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