A Forex Strategy to trade on Economic News Releases
A fascinating forex strategy that can be employed when trading is to use the economic news releases intelligently. You can use economic news releases to get in and get out of the currency positions. You will find out sooner or later that you can utilise the news releases to make your money. This is mainly because of the international nature of the forex trading market and also due to the impact the basic economic factors have on the currency trading market.
If you watch the economic news items closely, for example the U.S. `Non-Farm Payrolls’ and the GDP numbers, you will observe that they tend to influence noteworthy reactions in the forex trading market, particularly if they are likely to vary considerably from the market’s standard expectations.
You can try and position yourself on both sides of the market before an important economic news release using a hedged position. You can wait for the release and then begin to trade out your position. For instance, you may take a loss on one side post release after having taken a larger profit on the winning side of the trade. This is a hedging or straddling forex strategy that can involve going both long and short in the same currency pairs before the release of a significant economic news item. Action is not taken until after the news item is released. Once the news gets released, you have to decide how to manage the trade out of this dual stance. Usually, this will involve taking both a profit and a loss. The difference between the profit and loss is what matters. If the news release is positive and favourable, then you can take profits on the trade first. This will allow you to decrease the loss on the unprofitable leg as the market corrects itself after it generally makes an exaggerated reaction to the economic news item.
If the economic news item is unfavourable, the same basic follow up forex strategy has to be used when the market falls by closing the winning short position first and then trading out of the losing long side of the hedged position. A variation in this technique will involve instructing a stop loss immediately on the losing position and waiting for it to be hit. Once the stop loss is hit, the winning side of the position can be held on to for extra profits or you may decide to liquidate them immediately.
The forex market reacts every day to the release of fresh economic news. The important economic information releases that are most often traded upon as a good forex strategy are:
• U.S. Non Farm Payrolls – It is an influential economic indicator that is released every month by the United States Department of Labor as a comprehensive report on the status of the labor market.
• Interest Rates that are set by central banks have a direct influence on the currency pricing. Central bank intervention can induce forex market volatility.
• Gross Domestic Product
• Employment Numbers
• Inflation Numbers
• Trade Balance