Friday, September 14, 2012

Trading The News

News trading is a popular tactic that many Forex retail traders will try sometime in their trading careers. However, not many people are aware of what it takes to trade the news successfully.
What is news trading?
This involves the entering into trades just before, or immediately after the release of important economic news announcements. Traders 'trade the news' because market prices tend to move up on good news, and move down on bad news. Important announcements typically affect currency prices directly.
Why is news trading so popular?
The biggest reason for the popularity of news trading is the potential for large price movements in a very short period of time. Prices can move up to 100 pips (or more) in under a minute just after certain news is released.
The large profit potential is what lures most traders to take part in this form of trading. You can make a lot of money in a very short period of time.
But! News trading is dangerous
Indeed, with the large profit potential comes the possibility of a large loss. News trading is dangerous because if you're caught on the wrong side of a trade, you can lose money so quickly that you won't even have enough time to manually close your trades. Even stop loss orders are unreliable because of the high probability of slippage due to the sudden price surge.
Should you news trade?
Honesty, I wouldn't recommend this to anyone unless they're absolutely sure about what they're doing. Successful news trading requires one to first have superior (faster) news feeds and second to have uncanny reaction speeds to quickly enter your trades the moment news is announced.
Any other form of news trading such as placing limit orders either above or below the market price is simply guessing. And if you're guessing, you won't survive very long in the market.
My advice for most retail traders would be to avoid this form of trading altogether.

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