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To the inexperienced eye, Forex trading may seem intimidatingly unpredictable. Thankfully, there are plenty of insight sources that even a beginner trader can easily access and interpret to his/her advantage before making a move in the vast and seemingly unpredictable market. Following news reports and paying close attention to the global agenda could provide you the necessary tools to keep up with the market’s pace and make the smart moves. It’s a crucial part of forex trading, simply because news reports can trigger dramatic changes in global markets. The good news is, you can take advantage of it. 

Which news to trade?

Taking immediate action after a big news release is important. Having a general idea about what’s going on around the globe is good but knowing on which news reports you should follow closer is better. U.S. news take the lead simply because:

-    U.S. has the largest economy in the world
-    USD is involved in nearly %90 of all forex transactions. 

Top news or reports that cause volatility:

-    Central Bank Rate Decisions
-    GDP Reports
-    Inflation Data
-    Unemployment Rate
-    Retail Sales

How does major news make forex market move?

To get a deeper understanding of the relationship between news and forex, let’s assume X country released higher unemployment rates than the market anticipated. This indicates X’s economy is not doing so good at that moment. Investors and traders tend to sell this country’s currency as it has lost trust in the market. Now imagine millions of traders readjusting their positions...

This causes wider spreads in all relevant trading instruments inevitably. Since major currency pairs have the most liquidity, they have tighter spreads, thus it’s safer to stick with them during major news events. But this also means missing out on the opportunities presented by market volatility. As always, higher the risk bigger the gains. In the end, you should decide what your risk tolerance is and what kind of trading strategy is better suited to your trading needs.

How to trade the news?

There are two approaches to trading news. Having directional bias or having non-directional bias.

Having directional bias means you expect a move to a certain direction in the market, depending on the released news report. Consensus, the predicted numbers of a news report are released by analysts before the actual numbers are known by people. Consensus may be accurate or wrong and often provide important data about how market reacted to certain expectations. Analyzing previous years’ consensus vs actual numbers can be quite helpful to understand market’s dynamics.

Having non-directional bias on the other hand, means you are not biased toward a move to a certain direction, rather you have a plan for market changes to either direction. Non-directional bias is also known as straddle trade strategy. If you choose to go with this approach, your entry levels will be breakout points on either direction. Positioning like this gives you the opportunity to benefit from any news release outcome. Naturally, this approach means you need to set relevant T/P and S/L levels for both directions on your charts. Once either outcome proves to be the dominant market sentiment, you can discard the other and proceed with the accurate one.


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