The Beginner’s Guide to Trading the News Efficiently
The financial markets are intrinsically linked to important international news, pushing economic data to act as a catalyst for market movement. So how can the savvy trader stay one step ahead of the markets and take the right step at the right time to work the markets to their advantage?
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- Which currencies should you choose to trade?
- Which dates should you mark in your calendar?
- Tips on how to trade news
There are lots of pairs that seem a match made in heaven. Bread and butter, salt and pepper and well…trading and international news. The financial markets are intrinsically linked to important international news, pushing economic data to act as a catalyst for market movement. So how can the savvy trader stay one step ahead of the markets and take the right step at the right time to work the markets to their advantage?
Which currencies should you choose to news trade?
First thing you need to know before you start news trading, is that sometimes when buying an asset, news is already included in the price. Why does this happen if the news has not even happened yet? Traders try to predict the news announcements and so the market tends to alter the price of the asset due to the perception that is created.
So which currencies should you choose to focus on? Well, the major currency pairs (GBP/EUR, USD/EUR, USD/GBP) are always a good option if you are just starting out in trading. Ultimately, traders choose the currencies they want to trade depending on personal preference as well as the trading style. If you love news trading, you may choose to look out for certain releases, economic reports and financial news and then trade according to the economic data available.
So Which Dates Should You Mark on Your Calendar?
To answer that question you need to outline which data will influence your currencies. As a general rule, U.S. economic releases tend to have the most impact on the markets. Change in interest rates, inflation, retail sales and unemployment rates are all key variables that will influence currencies and provide trading opportunities. This is why it is crucial you keep an economic calendar that is handy for you and your trading needs.
Compile your favorite currencies and jot down important dates when releases are going to happen that will concern these forex pairs. Look out for any regular reports that are released on a weekly or monthly basis. This will help you get into a routine of looking out for these reports before you start trading.
Reports such as the Federal Reserve Announcement, U.S. Jobs report, Corporate Earnings report and Non-Farm Payrolls are all reports you should keep an eye out for and make sure to jot them down in your calendar.
Checking our News section daily is also a useful way to be updated with important reports and releases that may be happening in the financial world.
What are Some Tips on How you Can Trade News Effectively?
It might be confusing for traders who are new to news trading to keep up with all the different news that jolt the market to and fro every day. The below tips can help you stay on top of the market and make sure you are always one step ahead.
Tip #1: Stay Rational
If you are a new trader, it might be quite easy to succumb to peer pressure and follow the market sentiment. When adrenaline is high and the market is rallying upwards, you might be tempted to buy high or sell low when the market is crashing. As most seasoned traders know, a little bit of patience goes a long way.
Tip #2: Always Have a Trading strategy at Hand
When trading news, everything might change at the drop of a hat. Traders without a plan might be left feeling confused. A great trader is an organized trader. Before you start trading, you should always have a plan. While you may not stick to your plan, it will help you decrease knee jerk reactions that may occur from market movements. Making sure you have a fixed trading entry and exit point before, will help you keep the bigger picture in mind. It will also allow you to interpret the movements happening in the market to your favour.
Tip #3: Play Safe and be Informed
It might be an obvious rule but it is still worth stating. Make sure you are aware of important events such as earnings report, FOMC announcements and economic data releases. You can find these easily by visiting our News section. Every day, our News section is populated with daily articles that delve deep into what is happening on the market and help show you how events will be influencing your trades.
It is also worth keeping in mind necessary precautions to safeguard your finances before you start trading. Put a stop loss on your account to avoid excessive loss on a security position.