Like any trading strategy, news trading is also quite risky. You should pay enough attention to this.
The following are the risks of the news fair:
Because the market will show huge fluctuations when key news events occur, some brokers will expand the spread of foreign exchange transactions at these times. This increases the cost of the transaction and may also cause damage to your account.
Your trade may also be executed at the right time, but the exchange rate trend on your trading platform graphic may be delayed for a few minutes. Obviously, this is very bad for you, because if the market shows a trend that is contrary to your judgment, you It is difficult to make adjustments in time.
Imagine that you think that the order you previously set has not been triggered, so you plan to enter the market price, but then you realize that your original order has been triggered. Now, the risks you face are multiplied!
You may also encounter “slippage” situations. Slippage means that there is a gap between the point where you placed an order and the point where the last transaction was made.
Market volatility caused by news usually does not cause the market to show a unilateral trend. In many cases, the market initially fluctuated in one direction, but it didn’t take long before it began to fluctuate in the other direction. Finding the right direction of volatility is sometimes a headache for traders!
Trading news is not as simple as Altman playing a little monster. It requires a lot of practice, in addition to practice, or practice!
More importantly, you must develop a complete trading plan. In the next lesson, we will give you some applicable advice on how to trade news.
What news is worth trading?
Before we find a news trading strategy, we need to know that those news events are worth trading.
Remember, we trade news because the market volatility will increase significantly after the news is announced, so we will only trade the news that most causes market volatility.
Although the foreign exchange market responds to the vast majority of economic news published by different countries, the news that has the greatest impact on the market and is the most watched comes from the United States.
The reason is that the United States is the world’s largest economy, and the US dollar is the global reserve currency. This means that 90% of global foreign exchange transactions involve US dollar transactions, which makes the news and data from the United States quite worthy of attention.
In addition to inflation reports and central bank officials’ speeches, you should also be vigilant in geopolitical news, such as wars, natural disasters, political unrest, and general elections. Although these news may not cause huge market fluctuations like other important news, we still need to pay attention to these news.
At the same time, we also need to keep an eye on stock market trends. Many times, the sentiment of the stock market will become the precursor of the trend of the foreign exchange market.
Now that we have known which news events will cause the most volatility in the foreign exchange market, our next step is to determine which currency pairs are worth trading.
Since news will increase the volatility of the foreign exchange market and create more trading opportunities, it is important that the currencies we trade are liquid. Liquid currencies can convince us that our orders can be executed smoothly without jamming.
Did you notice any problems here?
Yes, these currency pairs are the main currency pairs!
Remember, because these currency pairs have the most liquidity, the spreads for trading them are usually the lowest. Since trading after the news or report is released, the spread will widen, and it is necessary for us to start trading from these currency pairs with the lowest spread.
Now that we know which news events and currency pairs can be traded, in the next lesson, we will focus on learning how to trade news.