What is news trading and how to estimate its significance for a trader?
Many traders understand how important it is to be aware of all current social and political events in order to optimize their Forex trading and make it as profitable as possible. It is difficult to overestimate the significance of news events, since they have a significant impact on the state of the market as a whole. News can change market sentiment and set unforeseen trends in asset prices. In this regard, any trader should be able to extract value from news events, and today we will tell you how to do this by explaining the most popular automated trading strategies in Forex.
So who is a news trader? From the name itself we can make a logical entailment that the essence of this trader’s activity is to trade currencies, stocks and other assets during the release of significant economic news. Incidents such as a change in the government of a country, personnel reshuffles within the administrative apparatus of companies leading in their industries, elections, natural disasters and other extraordinary events always affect the market, changing the balance of power. In this case, how can a trader organize automated Forex trading, taking into account news trends?
In market terminology, it is customary to call a news trader an investor or a trader who matches his trading decisions with news releases. Economic surges in the stock and foreign exchange markets can, in the short term, change the global dynamics of prices for stocks, bonds, investment units and other assets. This allows you to trade the market’s reaction to important news events, resulting in multiplier profits for the long-sighted trader. Today we will look at the peculiarities of trading with news and aspects of such trading in the context of Forex currencies market.
Trading with news becomes more convenient and profitable if a trader uses a specialized robotic software – an expert advisor, which, in fact, is an automated trader instead of a human and, with the correct settings, trades on the news much more efficiently and accurately than a person who can be easily influenced by emotions and can be able to make impulsive actions. Let’s take a closer look at the classification of trading strategies of news traders and their practical application in committing Forex transactions.
Effective trading strategies of news traders
It should be noted right away that most of the trading strategies of news traders are based on a good understanding of market psychology and the ability to navigate historical, archived data in a particular market. Those investors who want to preemptively avoid erroneous actions and conclude high-yield transactions in the prevailing number of cases carefully study trading practices for previous time periods, for example, these can be analytical reports for past months and years, where the trends of growth or decrease in prices for assets due to high-profile news can be especially noticeable.
To understand how the news will affect automated Forex trading, you need to compare existing statistics with your personal trading experience and predict a certain development of events based on the information received. There are several options for making assumptions here, if you start from current news events. Every trader is concerned about the question: how to make automated trading much more beneficial, even if the market is experiencing increased volatility during the release of important news?
If a novice trader learns to use analytical tools for optimal alignment of their tactical steps and correct planning of transactions in Forex, then it will become much easier and more familiar to them to understand the intricacies of trading with the news, and the process itself will no longer seem too complicated for a beginner who starts backtesting automated trading strategies in Forex. Thus, it can be argued that for successful automated news trading, traders should apply the following
Forex trading strategies
- setting up the distribution of notifications about fresh news;
- correlation of up-to-date news information with price dynamics displayed on charts;
- taking advantage of bullish or bearish market sentiments, depending on the specific news;
- closing deals during the day while the market is under the influence of the news.
Let’s talk a little more about each of the above points. Why should a trader receive notifications about current news? Do they actually need this information? The answer is obvious: in order to, figuratively speaking, keep your finger on the pulse and keep abreast of all events that in any case, even without your awareness of this issue, will somehow affect the state of the market. Of course, it is better to have this information among the first who decide to play on the news in their favor and increase income from automated Forex trading.
It is also important to compare the data just obtained on the global economy, because it will become the first and most significant indicator of changes in asset prices, which will be displayed almost immediately on all trading charts and graphs. Accordingly, if a trader adheres to an aggressive bullish strategy for automated trading in Forex, then the rise in currency prices against the background of news will become the starting point for such a trader for profitable trades. A similar situation is observed with bears, which can benefit from this during a period of falling asset prices.
And finally, the last point we have outlined about making deals within one trading day is especially relevant for day traders, which, as a rule, include news traders. Breaking news affects the market for a short period of time, although, of course, serious events can cause economic consequences for a long time, both in terms of the dynamics of quotes and the value of securities. However, news traders should be aware of the limited effect of news on market trends and sentiment, so it is advisable to close trades before the end of the day.
How news trading works
We are going to mention that automated Forex trading strategies are a convenient auxiliary leverage for conducting stable and profitable currency trading. However, in addition to this, one should not lose sight of the very principle of trading with news. As mentioned above, this type of trading is quite strongly associated with the intuitive actions of individual traders, their subjective understanding of the situation. It is important to always keep in mind both the psychology of the market and the psychology of the individual in general, and, of course, it is necessary to superimpose this knowledge on the analytical component, that is, economic reports, forecasts and news themselves.
It should be remembered that a trader can get a good profit mainly during periods of high market volatility, while the news can still be called fresh and relevant, that is, while the market reacts to it. There is a saying among investors about buying rumors and selling news. The essence of this statement accurately conveys the state of affairs in the stock and foreign exchange markets during the news release period. Thus, promising automated Forex trading is possible based on the attenuation principle. Traders often ask this question: what is this principle of news trading and how to practically apply it?
With this approach, the trader trades assets in the direction that they consciously choose as the opposite of the current trend in the market. As long as it is the prevailing trend that is considered relevant, the news trader can benefit from the economic impact of the news by acting against the psychology of the crowd and the market in general. It is entirely predictable that optimistic sentiment for a particular asset will decrease throughout the day, and during these short periods a news trader can maximize profits by playing on contrasts.
The use of pre-planned announcements to open orders only profit from time-limited volatility, and this principle of operation is key for traders who want to competently apply automated Forex trading strategies against the backdrop of news events. However, in addition to planned and publicly announced trading, unplanned news events, which in their impact on the domestic and foreign economies, are so strong that they can greatly shift the focus on the market, can also bring profit.
Factors influencing news trading strategy
To conclude our today’s material on news trading strategies, we will supplement this review with important information about the factors that have a direct impact on the algorithms of automated Forex trading strategies. If a trader wants to get ahead of competitors and turn any micro- and macroeconomic event in their favor, then in addition to the ability to apply the strategy of trading on the news itself, one should also know about the key factors that provoke the appearance of significant news themselves.
Even if the news has not yet been announced, these factors are the root cause of mainstream news, and therefore there is a strong connection between them. Traders (especially day traders, or scalpers), however, like long-term investors, need to be able to predict the impact on the market by the events such as meetings of the central bank of any state on the refinancing rate, announcements of the actual and expected levels of unemployment and inflation, as well as the pace GDP growth. All of the factors we have listed directly affect the choice of the optimal Forex trading strategy.
Therefore, it is important for a trader to know that background economic processes can, relatively speaking, “detonate” and cause big news that will entail market volatility and changes in asset prices. If you are planning to use automated trading strategies in Forex to the maximum advantage for yourself, then our main recommendation is a thoughtful and impartial attitude to events taking place in the political arena in order to use their economic consequences to increase your capital.