An unconventional news trading strategy
When trading on the Forex market, exchange rate fluctuations are typically driven by news. Therefore, when searching for market entry points, one shouldn't completely abandon fundamental analysis.
Sometimes, reviewing and analyzing past events can help identify the causes of market movements. Technical analysis, however, only helps identify and implement key Forex patterns .
News trading should combine both methods of market research, only then will you 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.
