News is a very important part of trading. Various events may have a significant impact on price fluctuations. This is the reason for many traders pay particular attention to the releases and use the macroeconomic calendar to profit.
What is news trading?
This is a Forex strategy that allows us to open positions and get signals via various news releases. How to use it? You need to find a macroeconomic calendar first. There many websites currently offering news releases that you can use to search for the most important events.
Once you have found the calendar, you can proceed to the next step – looking for the most important events to follow them. They are often underlined or highlighted in another manner and you can easily find them.
The next step is to look at the figures. There are three main things to pay attention to – current reading, forecasts and previous meaning. The first one is unknown before the release. You need to compare the previous reading and the forecast. Once the event is released, you need to compare it to the forecast as well. If there is a huge margin between them, the price of the asset is likely to change significantly.
There is almost nothing to analyze here. You can open the position right before the release and wait for the result. If your guess was right, you will get profit in most cases.
News trading and risks
Even as news trading seems to be very simple, there are huge risks when you decide to start it. The first risk is the volatility, which may significantly increase after the release of the most important events. The growth of volatility may reach your stop loss and kick you out of the market.
There is also a risk of no reaction. The market may be neutral even after important releases, which may seem strange, but it happens. It does not mean that the event had no impact at all. This event may be already included in the price previously!
The next risk is directly connected to brokers and their activities. If you are working with floating spreads, they may increase significantly during important releases. This means that this commission will “eat” a part of your profit. In some cases spread may reach 50 pips!
Should you use this strategy? Now when you know all the advantages and risks of news trading, you can take a balanced decision.