Basic principles of news trading
In the Forex market there are many working options and also various methods of assets analysis. In turn, they can be divided into key approaches for trading operations, and the most popular of them are even combined into a whole trading strategy.
If we consider most popular ways to trade on fix api Forex, then I would select the following types:
• Trading based on patterns (Price Action);
• Trading based on technical indicators;
• Trade using trading robots (http://forexzzz.com/product/forex-zzz-lock-arbitrage/)
• News fix api trading.
Today I want to consider the latest option, because it has many fans and developers are creating more and more robots that analyze news flow and independently take decision of buying or selling a currency pair.
What is the essence of news trading?
News trading is very simple. All a fix api trader needs to know at this moment is, what news are coming out now and what reaction is already expected by the market, when it accordingly adjusts to this. Simply put, manager or trading robot looks at the economic calendar, opens, in the case of the desired data at the time of the news release, orders upon the pulse of the news in the direction of the movement.
To make it clearer, let’s look at an example:
The trader expects the data on inflation in the EU. The previous estimate was 1.5%, in the moment the market expects 1.6%. And if the data will come with increased indicator of 1.6% or more, it will strengthen the Euro and the trader opens a long position in it.
What should you know before using this strategy
News trading is not suitable for all types of news. I recommend to use it only with the fundamental data, where there are past results and the forecast at the moment. Therefore, the news in the role of Central Banks meetings or speeches of public figures should be ignored. Their words or action are hard to predict and, when you open a trade in the beginning of this event, you can catch the stop due to the reversal after a new portion of information from them.
Therefore, I recommend to use news trading with following data:
• Volume of production;
• Balance of payments;
• Labor market (In USA Nonfarm – http://www.investopedia.com/terms/n/nonfarmpayroll.asp).
How to trade
To trade according to data, that I described above, it is necessary to follow the existing small algorithm of actions, which is based on pending orders. Let us consider it on an example:
We know that on the first Friday of each month we have the US labor market data (Nonfarm payrolls). To earn some money with that, a trader must set two pending orders up to 5 minutes before the publication of data (buy stop and sell stop) at 10-15 points from the market price, and follow them. It means to pull up before the news release. When the news come out, it will give a strong impulse, as a result of which one trade operation will open. Then, an unopened order should be removed, and to the one, which is already showing a profit, you should set a trailing stop. That’s all. It’s pretty simple.
News trading allows you to capture an excellent percentage of return on the fix api Forex market by making just a few transactions per month. Using trading robots for this type of trading, you can improve financial performance, because most of them are connecting directly to data and immediately let new actual figures flow through their mathematical calculations. Based on these calculations, the algorithm makes the decision about buying or selling a currency pair at the very beginning of the movement.