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News trading

News trading is a trading technique based on fundamental analysis. The releases of economic indicators usually move the market. News traders are trying to make gains from these moves. There are many different possibilities to catch these moves, many traders are combining fundamental analysis with technical analysis, many of them are using robot softwares to trade the news, and there are also many forex trading signal services based on economic indicators. On this page you can learn these methods that you can use for news trading: 1. using pending orders; 2. trading the spike; 3. trading the retracement.

First of all, you will need and economic calendar. I recommend you the www.forexfactory.com because it is free, it is updated in realtime on news releases and you can find a description about every economic indicator on that page. I also recommend you the economic calendar on the www.forexpeacarmy.com, because on that page you can find the historical effect of almost all economic indicators.

1. News trading using pending orders

Probaly this is the most simple method, but also the most risky. All you need to do is to place two pending orders 2-3 minutes before the news release and set the exit traget and stop loss levels. All you need to know is the exact time of the news release and its usual effect on the market.

For example: Lets say that there will be a news release at 14:00 for the USD, and this economic indicator usually moves the EUR/USD rate by 50 pips. All you need to do is to place two stop orders in both directions on EUR/USD 2-3 minutes before the news release. For example, if the actual price 2-3 minutes before the news is 1.4000, you can place a 1. stop buy at 1.4020 with 1.4040 target and 1.4010 stop loss level and a 2. stop sell at 1.3980 with exit target at 1.3960 and stop loss at 1.3990. If the price will move 50 pips up or down, using these settings one of your positions will be opened and closed automatically with gain.
But! The risk of this method is that the price might move 20 pips in both directions. In this case, both of your positions will be opened and at least one of them will be closed with loss.

2. Trading the spike

In the moment of the news release, if there is enough difference between the actual and the forecasted value, the market will react fast with a big price move. This big initial move is called spike. The idea is to open a position before or at the begining of the spike and close it after. This way you can make huge gains, but it is very difficult to trade the spike, because you need to get the news very fast (before the spike, before other traders can react), and you also need a fast internet connection and fast order execution. You have only seconds to get the news, to make your decision, to place the right order. There are many real time news providers, and auto-click or robot softwares that can help you, but usually these are very expensive.

3. Trading the retracement

FOREX market is controlled by supply and demand. Increases in supply tend to depress the currency value, while increases in demand tend to increase the currency value. Buying a currency will increase the demand for that currency, selling the curreny will increase the supply for that currency.

For example: When the EUR/USD rate increases, people are buying EUR and selling USD, so for the EUR the demand is increasing and for the USD the supply increasing.

But, the goal in trading is to buy low and sell high! Those traders, who bought EUR at a lower price, need to sell it on a higher price to achieve the profit on their positions. When this happens, the supply for the EUR will increase and the EUR/USD rate will decrease.

In other words: when long positions on EUR/USD are closed, that will increase the supply for the EUR and the demand for the USD, and the EUR/USD rate will decrase.

Trading the retracement is based on this idea. Every positive change in the price will be followed by a negative change, and every negative change in the price will be followed by a positive change. The second change is usually smaller than the first, because not every trader will close his position and new positions are opened based on the trend.

The "after spike" period is a great oportunity to trade the retracement, because on the spike there are a lot of positions opened as a reaction on the good or bad news, and those positions have to be closed, to gain profit from them. Most of these positions are short-termed, so there is a high posibility that there will be a retracement after the spike.

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Please note!
Trading foreign exchange (FOREX) on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. You should not invest money that you cannot afford to lose.