Ever wondered how expert traders in the forex market are making commendable gains pretty easily? Well, the reason is simple – they view things differently! This is especially true when it comes to news releases. Therefore, I will dedicate this session to sharing with you how to make your forex trading easier by making the most of news releases.
Know WHAT Drives The Forex Market
You all know that it is forex news – especially political and financial news – that steers the forex market. Forex market, or for that matter any market, moves based on supply and demand. So whenever there is a news release, it will spur some changes in the market – either positive or negative. These changes then end up having a reflection in the prices. This is how news operates as the driver of forex market.
However, you need to understand one thing. Not all news affects the forex market. Only international macroeconomic events will have an impact on the value of currencies. These include the likes of non-farm payroll, FOMC, central bank interest decisions, etc. The impact that these kinds of news make on US dollar is simply phenomenal.
Know HOW Traders Use News Events
But how can these news releases be an advantage to forex traders? Well, a smart trader can capitalize on any factor that affects the market. He identifies every price movement as an opportunity for using some nice price action strategies and gets benefitted by it. So whenever there is a news release, he is sure that there will be a resultant price movement and will be on his vigil and take trading decisions using appropriate price action strategies.
Know WHAT Is The Ideal Situation
Now imagine a situation where you get some clues about the news that are about to be released next Friday. Will that be of any additional benefit to you?
Yes, isn’t it? Why? Because it helps you to buy or sell sufficiently earlier than other traders. It gives you that much-needed competitive edge over others. Remember the old adage, “early bird catches the biggest worm.”
Now what should you do to become that early bird? There are many things you should do but the single major prerequisite to become early bird is mastery of price action trading.
Why so? Those who have mastered interpreting price action chart can in fact “read the news” from these charts even before they are actually released. I will tell you how.
An ordinary trader will get access to information only when the news is formally released. But by that time, a lot of selling and/or buying might have taken place already. Wondering how? Well, for some section of people, the information that are about to be announced through news releases are handy. They can very well use this information to make their trading decisions. So what the ordinary trader gets as formal news release is in fact a very late realization. And thus he loses the opportunity to gain big from the forex market.
Know HOW To Play Smart
This is where a trained price action strategist can play smart. The buying and selling that I mentioned before (by those who have access to such information) will definitely have its reflection on the price action chart. In other words, the psychology of traders gets reflected in the price action chart. The trained eye of a smart trader who has mastered price action trading can spot this instantly from the chart and can get valuable clues into the nature of what is about to come (whether the news is favorable or unfavorable.) This will definitely help him to make appropriate buying or selling decision and end up as the early bird that catches the biggest worm!
Therefore, a smart trader can capitalize on these changes and improve his performance. In other words, a smart trader uses both fundamental analysis and technical analysis and gets the most out of every situation. This is what I want you to master to trade easier and trade smarter.
Now let us look into some examples to understand this well.
Shown below is the economic calendar chart. The chart displays details of news lists that are about to happen in the coming days. The news item that you should focus on out of this list depends on the currency you wish to trade. News impact is usually divided into high, medium and low impact news represented by red, orange and yellow color respectively.
Let us for instance choose US dollar as the currency to trade. Then Non-Farm Payroll is a major indicator that you should focus on. It is a statistical report that gives information about the total number of paid workers in United States in a month excluding farm, government, private household and NPO employees. The greater the number of employed, the stronger is the economy. Hence, NFP is considered as one of the key economic indicators for the country. Being spectacularly volatile, NFP generates good trading opportunities for all forex traders.
As you can see, there are 3 figures given against NFP under the headings actual, consensus, and previous. The figure given under previous (159) shows the value for the previous month and the figure given under actual (223) shows the value for the current month.
Now let us do some technical analysis by taking a look at the price action charts. The current value being more than consensus and previous, the chart shows a good sign.
USD-JPY DAILY CHART
The whole system works in an informed fashion. Prior to NFP, price was coming down to the event area and formed an inside bar pattern, which results in the overall trend continuation. Those who know the same could easily take a BUY position from that level or pullback entry. Price has moved around 2200 pips from that level till date.
Now let us take another example.
Shown below is the European Central Bank interest rate decision, which is yet another major influencing factor in forex trade. There was no change in the interest rate and FED chairman had announced that there will not be any interest rate hike decision till 2019. This resulted in a very negative sentiment in the European economy and thus Euro fell down drastically.
And now look at how we did our technical analysis based on price action charts. I had given prior and past weekly updates for getting better clarity.
There was a nice bearish pinbar pattern at the core model 1.18390 – 1.18400 level.
We had mentioned a SELL from the current levels by keeping a stop loss above that core model.
As you can see, the price just moved up again, re-testing the levels we mentioned 1.18390 – 1.18400 and then dropped like a stone after the ECB news!
Now let us look at a very important example which underlines the importance of ‘reading news from price action chart’ instead of solely relying on news and rumors. This is a classic example of ironies that happen in forex markets.
Please go through the tweet by ECB chairman where he mentioned that Euro is going to gain strength in the coming days.
However, after the news release, instead of gaining strength, Euro came down drastically! Those who traded based on this news and rumors alone without analyzing the price action chart would have incurred heavy loss by now.
Know WHAT Makes The Difference
Market will absorb the news and forthcoming events as it will be discounted in the markets. Market is the God, it is the supreme entity. Playing with market is like playing with fire. We should never try to outfox the market. Instead, we should remain as a humble disciple of the market and read it like a book and love the whole trading process. The takeaway that awaits you if you follow this approach of reading and interpreting price action context properly is abundant gains and resultant opulence from the forex market.
The key success factor, as you have identified by now, in all these examples is the accuracy with which the price action chart is read and interpreted. To develop this skill, you should muster your skills via thorough professional training. Those who wish to sharpen their price action trading skills and make accurate moves in the forex market can contact us and undergo our comprehensive training and mentoring programs. What awaits you is a whole new world of stable career and sustained growth!