Overreactions and subsequent reversals are seen fairly regularly in the forex market as large institutions add to the increased volatility of the initial move. The market as a whole, often spikes as an overreaction and subsequently push price back toward pre-release levels. Once the market calms down and spreads return to normal, the reversal often gains momentum showing early signs of a potential new trend. The shortfall associated with this strategy is that the initial spike may turn out to be the start of a prolonged move in the direction of the initial spike.

This underscores the importance of using well-defined stops to limit downside risk and get you out of a bad trade quickly. The news straddle strategy is perfect for traders expecting a huge surge in volatility but are unsure of the direction. This strategy lends its name from a typical straddle strategy in the world of options trading as it uses the same core strategy — to capitalize on an increase in volatility when direction is uncertain.

The disadvantage of the news straddle approach surfaces when price breaks support or resistance only to reverse soon thereafter. Similarly, price can trigger the entry order and move toward your target only to reverse until a stop it hit. Trading forex news at the news release has the potential to overwhelm traders with increased volatility in a short period of time. British pound GBP 4. Japanese yen JPY 5. Swiss franc CHF 6. Canadian dollar CAD 7. Australian dollar AUD 8.

New Zealand dollar NZD. And there are many liquid currency pairs derived from the eight major currencies:.

Currencies that can be easily traded span the globe. This means that you can handpick the currencies and economic releases to which you pay particular attention.

But, as a general rule, since the U. economic releases tend to have the most pronounced impact on forex markets. Trading news is harder than it may sound. Not only is the reported consensus figure important, but so are the whisper numbers the unofficial and unpublished forecasts and any revisions to previous reports. Also, some releases are more important than others; this can be measured in terms of both the significance of the country releasing the data and the importance of the release in relation to the other pieces of data being released.

Figure 1 lists the approximate times Eastern Time of the most important economic releases for each of the following countries.

These are also the times that players in the forex market pay extra attention to the markets, especially when trading based on news releases. Figure 1: Times at which various countries release important economic news. When trading news, you first have to know which releases are actually expected that week. Second, knowing which data is important is also key. Generally speaking, the most important information relates to changes in interest rates, inflation, and economic growth, like retail sales, manufacturing , and industrial production:.

Interest rate decisions 2. Retail sales 3. Inflation consumer price or producer price 4. Unemployment 5. Industrial production 6. Business sentiment surveys 7. Consumer confidence surveys 8. Trade balance 9.

Manufacturing sector surveys. Depending on the current state of the economy, the relative importance of these releases may change. For example, unemployment may be more important this month than trade or interest rate decisions. Therefore, it is important to keep on top of what the market is focusing on at the moment. According to a study by Martin D. Evans and Richard K. Lyons published in the Journal of International Money and Finance , the market could still be absorbing or reacting to news releases hours, if not days, after the numbers are released.

The study found that the effect on returns generally occurs in the first or second day, but the impact does seem to linger until the fourth day.

The impact on the flow of buy and sell orders, on the other hand, is still very pronounced on the third day and is observable on the fourth day.

The most common way to trade news is to look for a period of consolidation or uncertainty ahead of a big number and to trade the breakout on the back of the news. This can be done on both a short-term basis intraday or over several days. After a weak number in September, the euro was holding its breath ahead of the October number, which was to be released to the public in November. A pip is the smallest measure of change in a currency pair in the forex market, and since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point.

For news traders, this would have provided a great opportunity to put on a breakout trade, especially since the likelihood of a sharp move at this time was extremely high. The chart above illustrates—with two horizontal lines forming a trading channel —the indecision and uncertainty leading up to October non-farm payroll numbers , which were released in early November.

Note the increase in volatility that occurred once the numbers were released. We mentioned earlier that trading news is harder than you might think.

The primary reason is volatility. News traders often forecast news before its actual release. A significant difference between a consensus forecast and real news can lead to high market volatility. If you devised your strategy based on a careful analysis of predicted news releases, you will be able to effectively manage the risk of market volatility after the news release. When the market is anticipating the release of scheduled data, market experts and financial analysts predict the outcome of the news before its release.

Such predictions are called news, economic, or consensus forecasts. Economic forecasts are derived by averaging out the opinions of economists from banks, financial markets, and securities analysts. The consensus opinions often appear on forex market news and economic calendars. Before the actual release, the market experiences lower liquidity.

As a result, traders are cautious about opening new positions since they are unsure about the news outcome. When there is lower liquidity in the forex market, market makers may also widen spreads difference between the bid and ask price to compensate for the risk they are taking to undertake the trade since the outcome of the news and its effect on the market is uncertain.

Market makers are individuals or institutions that buy and sell currencies in large volumes to facilitate market liquidity. When the data is released, it will be compared to the forecasted news in the following manner;. The answer to these questions has an effect on market and price movement after the release of the data. The reaction of the market to actual news releases is unpredictable. However, the biggest market movement occurs when there is a surprise.

That is, the actual release is different from the forecast. The market can experience higher volatility with speculative traders hoping to make a quick profit or exit. This short-term rapid volatility can lead to a wider spread.

High volatility can also lead to price spikes and slippage. Slippage occurs when your order is executed at an unexpected price due to a rapid change in price between the time of order and time of execution by your brokers. Aside from that, a wider spread means the cost of trading will be higher. As such, traders may hit margin calls very early due to inadequate margin to accommodate the higher ask price.

When trading forex news, you should know that not all economic news has an equal impact on the forex market. Some financial news may not affect market volatility at all. Economic news from the United States is one of the important news that moves the forex market because the US Dollar is a major currency. The table below highlights major global news releases that can cause a significant move in the forex market. To stay on top of the trend, you should follow the best forex news sites and economic calendar.

You can devise your strategy around trading before or after the news release:. Trading before a major news release is suitable if you prefer transacting in a less volatile market with lower risk. This strategy works by opening a position in line with short-term trends and ranges.

This involves trading news at the moment of release or a few moments after.

Macroeconomic news is one of the major factors that often leads to short-term volatility in the forex market. Major finance news around the world can fundamentally impact the value of currency pairs. Learning how to take advantage of news releases to improve your profitability and minimise avoidable loss is crucial. Forex news trading means strategically trading based on market expectations before or after a news release as some significant news releases can move the market.

News here refers to macroeconomic statistics and monetary policy updates that affect currency rates. These can include inflation, GDP, interest rate, unemployment rate, and retail sales. While financial data may signal economic growth and a possible rise in currency appreciation, others may indicate diminishing economic growth and impending currency depreciation.

News traders often forecast news before its actual release. A significant difference between a consensus forecast and real news can lead to high market volatility. If you devised your strategy based on a careful analysis of predicted news releases, you will be able to effectively manage the risk of market volatility after the news release.

When the market is anticipating the release of scheduled data, market experts and financial analysts predict the outcome of the news before its release. Such predictions are called news, economic, or consensus forecasts. Economic forecasts are derived by averaging out the opinions of economists from banks, financial markets, and securities analysts. The consensus opinions often appear on forex market news and economic calendars. Before the actual release, the market experiences lower liquidity.

As a result, traders are cautious about opening new positions since they are unsure about the news outcome. When there is lower liquidity in the forex market, market makers may also widen spreads difference between the bid and ask price to compensate for the risk they are taking to undertake the trade since the outcome of the news and its effect on the market is uncertain.

Market makers are individuals or institutions that buy and sell currencies in large volumes to facilitate market liquidity. When the data is released, it will be compared to the forecasted news in the following manner;. The answer to these questions has an effect on market and price movement after the release of the data. The reaction of the market to actual news releases is unpredictable.

However, the biggest market movement occurs when there is a surprise. That is, the actual release is different from the forecast. The market can experience higher volatility with speculative traders hoping to make a quick profit or exit.

This short-term rapid volatility can lead to a wider spread. High volatility can also lead to price spikes and slippage. Slippage occurs when your order is executed at an unexpected price due to a rapid change in price between the time of order and time of execution by your brokers. Aside from that, a wider spread means the cost of trading will be higher. As such, traders may hit margin calls very early due to inadequate margin to accommodate the higher ask price.

When trading forex news, you should know that not all economic news has an equal impact on the forex market. Some financial news may not affect market volatility at all. Economic news from the United States is one of the important news that moves the forex market because the US Dollar is a major currency. The table below highlights major global news releases that can cause a significant move in the forex market. To stay on top of the trend, you should follow the best forex news sites and economic calendar.

You can devise your strategy around trading before or after the news release:. Trading before a major news release is suitable if you prefer transacting in a less volatile market with lower risk. This strategy works by opening a position in line with short-term trends and ranges. This involves trading news at the moment of release or a few moments after. To trade at this moment, you can capitalise on market overreaction, which may lead to an initial spike and eventually reverse the price towards the prerelease trend.

You can also trade the moment with a straddle strategy that capitalises on huge volatility but with an uncertain direction. Trading post news releases means you are not overreacting to the news release. You should give the market time to breathe and digest the news before entering a trade. This strategy involves capitalising on multiple time frames and approaching the defined level of support or resistance. Trading major news is potentially profitable, but it is also risky.

The best approach to major news trading is to make plans for the better and worse outcome instead of hoping the market will move in a specific direction. Blueberry Markets makes it easier to start forex trading in Australia.

Take a look and get started today. Sign up for a live trading account or try a risk-free demo account. Back up your trade positions with insights and how-to-guides, straight to your inbox every week. Thank you. You have successfully subscribed to Blueberry Jam! Share Article Copied Copy.

How to Trade Forex News: Forex News Trading Strategy by Blueberry Markets. How do major news releases impact the forex market? When the data is released, it will be compared to the forecasted news in the following manner; Is the news released as expected? Is it better than expected? Is it worse than expected? Which forex news releases to trade? Economic Data Release Time EST Release date US Non-Farm Payroll am Every first Friday of the month US GDP am EST Quarterly US Federal Reserve Bank Federal Funds Rate pm Eight times a year Australian Cash Rate pm Every first Tuesday of the month, except in January Australian Employment Change pm The first 15 days of the month.

Develop your strategy based on timing You can devise your strategy around trading before or after the news release: Trade the news before it happens Trading before a major news release is suitable if you prefer transacting in a less volatile market with lower risk. Trading news on the release This involves trading news at the moment of release or a few moments after. Trading news post-release Trading post news releases means you are not overreacting to the news release.

Final words Trading major news is potentially profitable, but it is also risky. Take a look and get started today Sign up for a live trading account or try a risk-free demo account. Latest Article November 22, - Daily Forex Analysis. November 21, - Daily Forex Analysis. November 20, - Week Ahead. Categories: Forex 94 posts Daily Forex Analysis posts Commodities 9 posts Cryptocurrencies 7 posts Trading Strategies 27 posts Shares 6 posts Week Ahead 39 posts.

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US Non-Farm Payroll. Every first Friday of the month. US Federal Reserve Bank Federal Funds Rate. Eight times a year. Australian Cash Rate. Every first Tuesday of the month, except in January. Australian Employment Change.

European Central Bank Refinancing Rate. Bank of England Official Bank Rate. Bank of Canada Overnight Rate. Ten times in a month. Canadian Employment Change. On the 8th day of the month. Seven times a year.

Search or use up and down arrow keys to select an item. This article provides useful strategies on how to trade forex news during a major news release. The currency market is particularly prone to short-term movements brought on by the release of economic news from both the U. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Before the actual release, the market experiences lower liquidity. Day Trading Trading the Nonfarm Payroll Report.

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