Forex news trading is perhaps the least technical of all the expert advisor strategies on the market today. Most of the Forex robots base their profit on a set of mathematical rules that analyse past price action to forecast the future behaviour of the currency. There big assumption there is the Efficient Markets Hypothesis – i.e. it assumes all the information available in the market is already incorporated in the price, and therefore there is no use in looking at anything beyond historical price movements.
Forex news trading aims to make a profit by forecasting how the price will behave just after a major piece of news affecting currency markets is released. It aims to profit from the few minutes the information takes to incorporate itself in the price. The main difference between a Forex news trading strategy and the rest of the technical analysis strategies is that technical analysis requires no knowledge of the underlying (fundamental) price drivers. You can apply the same technical analysis concepts to Forex and to orange juice futures, say. Whereas when it comes to a Forex news trading strategy some basic knowledge is requited on what the data means in relation to the underlying market.
The great thing about Forex news trading is that you can set stop losses very close to the currency market rate, and hence avoid large losses. You don’t need to hold the position open past a few minutes before the piece of econometric data is released. On the other hand, if you get the direction of the economics news right (i.e. the market moves in your favour), you could be sitting on very large profits very quickly.
So how do you know when Forex news is being published? The easiest way is to visit one of the many Forex economic calendars on the web every morning. Open up their calendar, set it to match your local time zone and mark on your charting software the time when the news releases occur.
The beauty about Forex news trading is that you don’t have to be trading every single data release. If one day you don’t have a view (or you simply cannot be in front of the computer trading), you can just let it go without having to have any position open. Other more long-term strategies, may require you a regular monitoring of the markets as you would have positions open over a number of days or weeks.
