It's all about the Fundamentals Vol. 2
Trading News...Where Do I Start?
Trading news seems relatively simple, right? If the market mood is looking optimistic as to an asset’s future, its price will rise. If the mood is negative, it will fall. Most of us know this, but trading the news successfully is a little trickier... Let’s look into it!
Here’s the deal: news trading isn’t about trading facts. It’s about trading moods. If you are waiting for a news release to see the actual figure, and then jumping into the game, you are already late, even if you react the same second. How come?
How it works & how to work it
Thing is, market sentiment is built before the news release. Picture this: investors want to buy low and sell high. They expect a positive NFP result. Hence, they are prone to buying the dollar now, while it’s cheaper, in the hope to sell it when it grows after positive figures are published.
Doing this means trading the market sentiment. Therefore, when you are looking through your economic calendar, consider buying the currency when the forecast is greater than the previous data.
Also, unless you know exactly what you are doing, or have a qualified advisor, avoid entering the market right after the news release. At times like these, markets are extremely volatile and may not move the way you expect them to.
When to close positions
To stay on the safe side, it’s smart to close the position right before the data is published for 2 reasons. Let’s use the same example of a positive expected NFP.
If the release is negative, investors are bound to sell quickly, causing the price to plummet.
If the release is as expected, investors will close the positions they opened ahead of the news. Such a huge profit take may lead to the exchange rate pulling the currency down even if the release is positive! This can happen when the event is already priced in, meaning that the news is already incorporated in the price before the actual data is published.
Keep these suggestions in mind & always stay up-to-date with news and events to trade the market mood like a pro!