Unconventional news trading strategy
Typically, when working on the Forex currency exchange, rate fluctuations occur under the influence of news.
Therefore, when looking for entry points into the market, you should not completely abandon fundamental analysis. Sometimes viewing and analyzing past events can help explain the reasons for what is happening in the market. While technical analysis only allows one to identify and implement basic Forex patterns .
Trading on the news should combine both methods of studying the market, only in this case you will be able to achieve the greatest efficiency.
What is a standard news trading strategy?
A trader anticipates the release of new news related to one of the currencies in a selected currency pair. Some focus more on the base currency, while others focus more on the quote currency, with only the factor influencing the trend changing.
Positive news for the base currency causes the price of the currency pair to rise, while negative news causes it to decline. With the quote currency, the opposite is true.
After a new event, the market reacts almost immediately, and most traders open trades in the corresponding direction.
Buying on good news and selling on bad news is the standard approach for fundamentalists, but to succeed in Forex, you need to approach things a little differently.
Trading in reverse.
This news trading approach involves entering trades after the price reaches a strong support or resistance level and then begins to move in the opposite direction.
It's easier to understand this strategy with an example.
You're trading the EURUSD currency pair, awaiting news on the euro. First, you need to build a price channel for this currency pair and identify the most significant levels over the past few days. These will serve as your guide for reversals.
Suppose positive news on the euro is released and its rate rises sharply. You don't open a new trade, but rather observe the price movement.
The price should reach the boundaries of the price channel or one of the strong levels (for example, the daily high). If the trend reverses downward at this point, this would be the most appropriate entry point.
The duration of a sell trade should not exceed half the previous trend triggered by the news. For example, if the price moved 70 pips after the news, you take 35 pips and close the order.
One of the main conditions of the news trading strategy is that the news must be sufficiently important.
It's a fairly simple trading option, but it's yielded quite a bit of profit when trading on the stock exchange, and it works great on Forex as well.
