Is it better to pay attention to Forex news or ignore it entirely? That is the question we will address in today’s post.
And I can almost guarantee that at the end of this relatively short post, you’ll have a whole different perspective on how to handle news events.
As a quick disclaimer, this will not be to everyone’s liking. The strategies and principles I mention here may not apply to people who trade with a fundamental advantage.
With being stated, if you, like myself, like to rely exclusively on price action, this post is for you.
Let’s get started.
Without having to watch the news, you can trade forex.
- I’ll let you in on a little secret. Are you all set?
- Every month, I do a news trade.
- Yep. Non-farm payroll, CPI, PPI, central bank news conferences, and even rate decisions are all things that affect the economy.
- You name it, and I’ll swap it for it.
What’s even more unexpected is this:
I accomplish all of this without ever reading or watching Forex news.
Sure, I’m aware of when high-profile events are planned. This enables me to manage my trading activity in such a way that I am not exposed to negative consequences.
However, I never create an opinion on the market based on the outcome of an event.
Do I, or do I not?
There are three types of traders when it comes to trading the news.
The first group is those who are fixated on the outcome of a non-farm payroll data or a rate decision. They pull the trigger as soon as they have this knowledge.
The second group consists of traders who are first to report on breaking news. By purchasing or selling ahead of a high-impact event, these traders try to outsmart the market.
The third group, which includes myself, forms an opinion based on the price activity.
We (price action traders) are waiting for the dust to settle on the sidelines. We then swoop in on the higher time frames and make our decision once all of the hubbub has subsided.
It also doesn’t have to be a buy or sell situation. We’re often left with a lot of nothing after the dust settles, which means we do nothing.
Make no mistake: we’re still exchanging information. A 200 pip pin bar forming at support as a result of a surprise rate hike is just the expression of the event.
So, if we buy that pin bar, we’re essentially buying the outcome of that unexpected rate hike.
Do you see what I’m getting at?
Although it may appear to be a tiny line, the difference in trading performance over time is night and day.
You want to be in the third group to have a chance in this business.
Read the Chart, Not the News
When looking at a price chart, it’s important to keep in mind that it’s not the news that
Do you have any idea why I prefer price action to any other trading strategy?
It is my preferred method because it informs me of the outcome of any Forex news event. Even better, it presents a unified and objective view of what just occurred.
Instead of trading what I believe will or should occur, I’m trading what really occurred.
That’s a lot more solid strategy.
It gets even more powerful when you combine price action indications with the daily time frame. Market participants will have had hours to weigh in on whether the event was positive or negative by the time the session ends at 5 p.m. EST.
The market’s opinion is the only one that matters at the end of the day.
It doesn’t give a damn what you think, and it surely doesn’t care.
I’d want to delve a little more into this because what I just said is the foundation of the problem for most beginning traders.
Individual opinions are what consistently bring traders into problems.
That, and a burgeoning ego. Let’s face it, in the Forex market, opinions and egos aren’t exactly in short supply.
Every week, I receive hundreds of emails from Forex traders all around the world. One of the most frequently requested questions is whether I believe a specific news event will be beneficial or negative.
Central bank rate decisions appear to be one of the most popular topics. Traders want to know if I believe a central bank will hike rates at its next meeting or not.
But there’s a catch…
- It makes no difference what I or you think.
- The only thing that matters is the opinion of the market. That concludes our discussion.
This is the same type of question that is posed concerning historical events. For example, a non-farm payroll report is released, and the numbers surprise to the upside, yet the US dollar continues to fall.
Inevitably, my inbox fills up with inquiries like, “If non-farm payrolls were good, why did the dollar tank?”
It doesn’t matter why it tanked if you’re a price action trader. And if you have a strong desire to answer the issue above, you could be better off studying the basics or using a hybrid approach.
This is my point…
If you enjoy examining price charts and trends, then forget about attempting to predict how the news will affect the market.
The same can be said of previous events. Don’t bother attempting to find out why the US dollar dropped when the NFP report was favorable.
Just keep an eye on the price action. That’s all there is to it.
Recognize when important Forex news breaks, but don’t try to outwit the market. Those that do so are frequently dissatisfied with the outcome.
Not to add that attempting to figure out why the market did what it did will drive you insane.
How I Handle Volatile News Events
You’re undoubtedly wondering how I handle major news events, especially those that cause significant turbulence.
First and foremost…
I always check the event calendar before making a trade. When I do this, I’m looking for news that might have an impact on one of the currencies I’m considering trading.
I use the Forex Factory event calendar, by the way. It’s the greatest one out there, in my opinion, because I can sort by severity and money rapidly. It even translates each event to my time zone for me, so I don’t have to worry about performing the math.
This guide will teach you how to use the Forex Factory calendar.
But how do I trade while preserving my cash from volatility when there are so many events each week?
The first thing to understand is that I only pay attention to events with a high or medium impact. If you’re using the Forex Factory calendar I described earlier, they are the red and orange colored events.
This method eliminates around a third of the Forex news on the calendar. I don’t pay attention to low-impact events because they don’t seem to produce much volatility and aren’t worth noting on the calendar.
It will be much easier to find room to trade once I’ve straightened this out.
When trading ahead of a high-impact event, my basic guideline is that it must be less than 48 hours away. This allows the transaction to catch its breath before the volatility rises.
As a result, if the RBA announces a rate decision within the next 24 hours, I will not consider the Australian dollar. The New Zealand dollar and an RBNZ rate decision are in the same boat.
Now, some events prevent me from trading any currency. Here are a handful of them:
- Fed rate choices based on non-farm payrolls (NFP)
- Referendums on major issues (sometimes these occur over weekends)
- Elections in the United States
This isn’t an exhaustive list, but regardless of the currencies I’m considering, any one of these events will keep me on the sidelines.
The majority of the events listed above have an impact on the US dollar. While a non-farm payroll event will have the greatest impact on a pair like the EURUSD or GBPUSD, it can also cause volatility in cross currencies.
Even the risk-averse Japanese yen is vulnerable in this situation.
Don’t focus over the news if you want to become a profitable price action trader. All you need to know is when certain events are taking place and how they can affect the currency you’re trading.
Everything else is merely background noise.
Learn to read the price action on your charts instead of reading Forex news. That way, rather than simply your own interpretation of an event, you’ll get the market’s. This can make you feel more at ease in any situation that arises as a result of the news.
Always check the calendar before making a trade. The Forex Factory event schedule is my favorite. It’s well-organized, configurable, and can be set up to fit your time zone, so you won’t have to mess about with time conversions anymore.
I’m safe as long as there are no high-impact news events in the following 48 hours. Otherwise, I’ll sit this one out and wait for things to calm down before moving on to the next opportunity.