Top 5 News Releases You Should Care About As A Forex Trader
My Story With News Releases
For a long time, I have been ignoring the news as a beginning Forex trader. One day, at the very beginning of my journey, I decided to try trading the news…I failed. Despite that, news releases are still important in the Forex market!
Although I started out by focusing almost exclusively on technical analysis, I began incorporating news releases into my trading.
Today, I believe strongly in the importance of, as least, being aware of the news releases coming up. You do not need to trade the news, and nor should you if you are still in the early phases of Forex trading.
That being said…I am a purely technical Forex trader.
In this article, I will outline the main news releases I care about and explain what you should do with them.
The reaction to a news is always uncertain. No one can say in advance how the market will react to a specific news release. The reason is simple; people do not trade the news itself, they trade the difference between their expectation and the actual released number. If the released coming out varies from what was expected, a strong reaction is most likely.
However, even at that point, it is impossible to say whether traders will jump into the market. Sometimes, the market reacts before a news is released, and come back to its original point afterward. The only way to know is to watch price action closely. You should always protect your money.
The News Releases You Should Care About
1. Non-Farm Payroll (NFP)
The more people are employed in a country, the better the economy of that country is doing, right?
Every first Friday of the month at 8:30am EST, the Non-Farm Payroll is reported. It represents the total number of employed workers without including farm employees.
The NFP is the news report that causes the highest volatility in the market. Several speculators are entering the market to predict its direction.
Watch: NFP Trading Day in Montreal
2. Federal Open Market Committee (FOMC)
The Federal Open Market Committee is made of a board of governors, which has seven members, and five reserve bank presidents.
The committee meets 8 times per year to determine factors driving the direction of the currency. Those are the key interest rates and the changes in the United States' money supply.
3. Trade Balance
Every month, the Trade Balance is released to represent the demand for goods of a particular country.
If the number is high, it means that the demand for what the country exports is high. That is a positive sign.
If the number is negative, it means that the country imports more goods than what is exported.
The Trade Balance isn't as significant than the two previous news releases, but it still has an impact on the market.
4. Consumer Price Index (CPI)
The Consumer Price Index is a measure of inflation. It measures by how much price increased in an economy for a default basket of products. It is released every month.
An increase in CPI is definitely a sign that the economy is growing.
The CPI can also be referred to as Retail Price Index.
5. Gross Domestic Product (GDP)
The Gross Domestic Product is released monthly and represents the total market value of everything produced in a certain economy during the past month.
The GDP often cause a high increase in volatility as it is another main indicator of the economy's health. Evidently, the more a country produces, the better things are going.
There are three measures of GDP: advanced, preliminary, and final. The advanced GDP is the first release, and thus highly traded. The preliminary and final measures will be majorly traded in the case of a difference with the advanced measure.
What Currency Pairs Are Most Affected?
The news releases mentioned above usually have a strong effect on major currency pairs. The more liquid a pair is in general, the more important the reaction to the news.
For instance, during the released of an economic indicator from the United States, the EUR/USD is likely to react more than the USD/CAD. The reason is that the EUR/USD is usually more traded.
Adopting A Logical Perspective
One of the mistakes most traders make when trading news releases is to enter on the first movement appearing on the chart with the fear of missing out of a big move. That type of behavior is often punished since the first reaction caused by the news is likely to reverse.
There is a special module in the DesireToTRADE Academy about trading the news. Whether you trade the news is totally up to you.
If you do not intend to trade news releases, you might want to ignore trade setups occurring prior to those releases. In addition, you could look to move your stop loss to breakeven if you want to prevent your open trades turning into losses. That has made a massive difference in my own trading.
While I still do not use the news to trade, I definitely want to protect my open trades in the case of a sudden strong movement in a direction. Some news releases can cause a movement of more than 100 pips in one direction.
If you are a day trader, you'd be better waiting for the news reaction to being completed before entering a trade for the day. You might also want to close intraday trades prior to major scheduled news releases.