Forex News Trading Strategies

8/9/2019 Forex News Trading Strategies

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Forex News Trading Strategies

In this lesson, I will talk about the different ways how you can trade forex during key

economic news events.

Most common used news strategies:

• Trading the Numbers

• Straddle the News

• Hedging the News

Trading the Numbers

Traders want to take advantage of the discrepancy between the forecasted and the actualkey economic number when trading the numbers. s mentioned before, you need a very

fast news data feed such as !euters or "loomberg because you want to get in the trade

before the spike begins.


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Steps to trade the numbers:

#. $urchase a fast news datafeed at !euters or

"loomberg%. Track the news consensus and determine the

significance of the economic news report beingreleased, if it is not important, do not trade it. &ou will

be able to find all important data on a good datacalendar

'. (or each important news release you need to know

how large a discrepancy has to be in order for you toact on the trade.

). (inally, watch the news release using your fast

datafeed and trade the numbers.

Example:

*+ $I News !elease

-There are three different numbers. There is the month over

month $I, there is the year over year $I, and there is the

core $I.

The most important number that most traders and economists will be focusing on is the$I headline year over year number, which is expected at around %./, same as it was

last month.

If for some reason the number comes out at '.#/ or higher, it would set a new high inmany years, and a possibility of a rate hike out of *+ will probably be consideredimminent, so 0"$1*S2 may possibly go up by 3 pips or more in the first hour of the

report.

If the $I reads at %.)/ or lower, it would be a huge drop, and most would probablyassume that the "ank of 4ngland will have to think twice before hiking the rate anytime

soon, so 0"$1*S2 may possibly go down by 3 pips or more in the first hour.-

Possible scenarios:

If the consensus and the actual number is inline with the market expectations, you wouldnot trade.If the actual number is at '.#/ or higher, you would go long.

If the actual number is at %.)/ or lower, you would go short.

"elow picture shows what happened that day. The number came out much better than

expected and the 0"$1*S2 spiked up.


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Range low: 1!!1!

$lace an order to buy at #.;;)# with a stop loss order at #.;;#


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orders, retail sales, and sales data.

#onstruction Spending

Spending Eeasures the value of construction during the course of a particular month.

#onsumer Price Spending $#PI%

$I measures the change in prices at the consumer level for a fixed basket of goods and

services paid for by a typical consumer. Items included in the $I reflect all goods andservices that people buy for day6to6day living.

#urrent &ccount

The current account is the sum of net income from trade in goods and services, net factor

income, and net unilateral transfers from abroad. It:s a statement of the country:s tradewith other nations over a period of time.

'urable (oods )rders

2urable 0oods include large ticket items such as capital goods, transportation and

defence orders. They are extremely important because they anticipate changes in production and thus, signal turns in the economic cycle.

Employment *eport

In the *S, the employment report is regarded as the most important among all economicindicators. The 4mployment !eport contains ' componentsC $ayroll 4mploymentC

Eeasures the change in number of workers in a given month.

+nemployment *ate

The percentage of the civilian labor force actively looking for employment but unable to

find Bobs. verage Hourly 4arnings 0rowthC The growth rate between one monthDs

average hourly rate and another.

Factory )rders

The factory orders report contains data on orders and shipments of non durable goods,

manufacturing inventories, and the inventory1sales ratio.

F),# 'ecision

The (FE holds eight regularly scheduled meetings per year. If the (FE wants to

increase economic growth, it will reduce the target fed funds rate. onversely, if it wants


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to slow down the economy, it will increase the target rate with a rate hike.

(ross 'omestic Product $('P%

There are four maBor components of the 02$ areC consumption, investment, government purchases, and net exports. 02$ measures the market value of goods and services

produced in a country.

Housing Starts-Building Permits Starts

re divided into single6family and multi6family categories. In both cases, a housing unitis considered Gstarted when excavation actually begins.

IF)

0ermanyDs leading survey of business conditions. The index surveys over N$E?.

New Home Sales

Eonthly data new home sales data contains information on home prices, and number of

houses for sale.

Non Farm Payroll $NFP%

N($ represents all business employees excluding general government employees, privatehousehold employees, and employees of nonprofit organiAations, accounting for about3/ of the workers who contribute to 02$. N($ is released every first friday of the

month and can cause big gaps on the forex market.

Personal Income

$ersonal Spending, also known as $4, represents the change in the market value of all


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goods and services purchased by individuals. It is the 02$:s largest component.

Producer Price Index $PPI%

$$I measures the monthly change in wholesale prices and is broken down by commodity,industry and stage of production.

Purchasing ,anagers/ Index $P,I%

$EI is widely used by industrialiAed economies to assess business confidence. 0ermany,apan and the *+ use $EI surveys for both manufacturing and services industries.

*etail Sales

!etail sales is the first real indication of the strength of consumer expenditure .Eeasures

the percentage monthly change in total receipts of retail stores, and includes both durableand non6durable goods.

TI#S

The Treasury International apital >TI? !eport measures foreign demand for *S debt

and assets. Strong demand tends to strengthen the dollar as foreigners convert theirmoney in order to purchase *S securities.

Tan!an Sur"ey

apanDs chief business survey, compiled @uarterly by the "ank of apan. The surveyconsists of two maBor partsJ the -Budgment survey,- asking businesses about their

situation in the previous, current and following @uarters on macro6economic variables, business conditions, inventory levels, capacity utiliAation levels and employment level.

The other main part is related to -current management issues- confronting companies.

Trade Balance

The difference between the monetary value of exports and imports in an economy over acertain period of time. positive balance of trade is known as a trade surplus and consists

of exporting more than your importsJ a negative balance of trade is known as a trade

deficit or, informally, a trade gap. The Trade "alance also has a siAable impact on 02$.

+S Economic Numbers to 0eep an E1E )n

The rankings for *S economic data as seen in below table are based on an analysis of %36

minute and daily ranges. s seen in below table for example, the Non6farm $ayrollrelease days can cause a big shake up in the forex market. They have the potential to


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move the 4*!1*S2 >on average? #%' pips in %3 min and #;' pips in a day on average.

Biggest F2 mar!et 3sha!ers4 table

1ear 5667 8 56min after news

vg.!ange>pips?

Non6(arm

$ayrolls

#%'

(FE 2ecision


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N($ !elease ScheduleC (irst (riday of the month at C'3am 4ST

5: F),# 'ecision

The (FE holds eight regularly scheduled meetings per year. If the (FE wants toincrease economic growth, it will reduce the target fed funds rate. onversely, if it wantsto slow down the economy, it will increase the target rate with a rate hike.

;: Trade Balance

The difference between the monetary value of exports and imports in an economy over a

certain period of time. positive balance of trade is known as a trade surplus and consistsof exporting more than your importsJ a negative balance of trade is known as a trade

deficit or, informally, a trade gap. The Trade "alance also has a siAable impact on 02$.

7: #onsumer Price Spending $#PI%

$I measures the change in prices at the consumer level for a fixed basket of goods and

services paid for by a typical consumer. Items included in the $I reflect all goods andservices that people buy for day6to6day living.


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: #urrent &ccount

The current account is the sum of net income from trade ingoods and services, net factor income, and net unilateral

transfers from abroad. It:s a statement of the country:s trade

with other nations over a period of time.

?: 'urable (oods )rders

2urable 0oods include large ticket items such as capital goods, transportation anddefence orders. They are extremely important because they anticipate changes in

production and thus, signal turns in the economic cycle.

@: TI#S

The Treasury International apital >TI? !eport measures foreign demand for *S debt

and assets. Strong demand tends to strengthen the dollar as foreigners convert their

money in order to purchase *S securities.

Artilce b% *ill% +e ,lerc- and aboutcurrenc%comInformation, charts or examples contained in this lesson are for illustration and educational purposes only.

It should not be considered as advice or a recommendation to buy or sell any security or financialinstrument. 8e do not and cannot offer investment advice. (or further information please read our

disclaimer .
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Forex News Trading Strategies