News trading is not for the faint-hearted. Probably, it’s not for the forex beginner at all. It might look easy, with all these giant swings of 100-150 pips in 5-10 minutes, but, like everything, there’s other factors that come into play at news release time.

Two main points:

1. You’re not trading the impact of the actual news – you’re trading the difference, if any, between the actual news and the market’s expectation of the news.

2. Don’t expect any help from technical indicators. After news releases, the price goes wild and indicators are left to catch up with the new circumstances.

1. Actual versus Expectation
For example – the quarterly Swedish GDP, gross domestic product, figures are up 0.3% – apparently good news for the Swedish economy. But the market forecast was +0.5% so it’s relatively bad news, and the Swedish krona most likely will decrease in strength compared with other currencies.

Next, remember that the normal rules of profit-taking apply. A price will often ’spike’ on release of news, whether up or down, followed by investors who caught the initial surge closing their trades to collect their profits – which will cause the price to reverse. Added to this is the marked tendency of humans to overreact(!) Price takes a giant surge, sanity then prevails and brings things back a little.

2. Technical indicators at news time
It’s easy to fall into the mindset of imagining that indicators control a price and its movements. They don’t. Ultimately, a major compoment of (most) chart indicators are the prices themselves, so ultimately they reflect what happens to the price. If the price moves dramatically – it’s the statistics that have to readjust.

Volatility and chaos at news time.
Since the price can be moving by 20-40 pips in a matter of seconds, dealing desks can’t always keep up. Your broker may guarantee their fixed spreads, but not all will make any serious guarantee as to execution time.

When your order is filled becomes critical. Slippage – that is, the delay between the order being made at your end and the execution of the order at your broker’s end – can completely change a winning into a losing trade – it messes not only with the price, but stop-loss levels as well.

With some platforms, the spread on a currency pair can be expanded significantly, from say, 3 pips to 30 – which makes it very difficult to know how to place an accurate trade.
Other brokers, those offering fixed spreads, will lockdown

At least 30 minutes before, and certainly 30 minutes after, a significant news release, expect things not to run smoothly.

Here’s GBP/USD on a 5-min chart, just to show what can happen to a currency pair at news release time. That’s a breakout of some 300 pips – excellent news if you can catch the breakout, and bad news if you’re not paying attention and working on some buy signals at the time.

And notice that the news release (it was quarterly GDP for the United Kingdom) came out against the market forecast, in that the price was drifting up just prior to the release, making the downtrend that much steeper.

News is all about the fundamental economy, economic growth figures, GDP, employment, retail sales, balance of trade figures, consumer prices, and, especially, decisions on central bank interest rates.

Most forex demo accounts will have a upcoming news calendar – just make sure you get the timezone right… And there’s plenty of websites and blogs with these same calendars and discussion of market expectation for you to follow. Sit down in front of a chart and watch the action unfold.

And when you’ve had enough of that, try 17. Forex Carry Trading →