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?
The trader is waiting for the publication of new news that is related to one of the currencies in the selected currency pair.
Some focus more on the base currency, and others on the quoted currency, while only the factor influencing the trend changes. Positive news on the base currency causes the price of the currency pair to increase, while negative news causes it to decrease.
In cases with quoted currencies, the opposite is true. After a new event appears, the market reacts to it almost instantly and most traders open transactions in the appropriate direction.
Buying on good news and selling on bad news is the standard way for fundamentalists to work, but in order to succeed in Forex, you need to behave a little differently from others.
Trading is the opposite.
This version of news trading involves making trades after the price reaches a strong support or resistance level and then begins to move in the opposite direction.
It is easier to understand such a strategy with an example.
You are trading the EURUSD currency pair, waiting for news on the Euro. First you need to build a price channel for a given currency pair and determine the most significant levels over the previous few days.
They will serve as a guide for you when turning. When positive news came out on the euro and its rate rapidly went up, you do not open a new deal, but only watch the price movement.
It must reach the boundaries of the price channel or one of the strong levels (for example, the daily high), if at this point the trend changes to a downward one, this will be the most suitable place to enter the market.
The duration of a sell trade should not exceed half of the previous trend caused by the news.
For example, after the news the price passed 70 points, which means we take 35 and close the order. One of the main conditions for a news trading strategy is that the news must be quite important.
A fairly simple trading option, but it brought quite a bit of profit when playing on the stock exchange, and it also works great on Forex.