Definition of Trading the News

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Video Transcription:

Hello traders. Welcome to the newest trading course and the second module technical approach, how to trade the news. In this module, I’m going to teach you all the necessary technical setups and technical tools you need to trade the news and how you’re going to trade them. And then, we are going to go on the third module and define what each news means and how they affect each currency. And then, you will have all the information you need to trade each and every single one of these events. And we are going to go through live examples, on module three.

Defining News Trading

So, we’re going to start by defining what a news trader is. Well a trader, a news trader is a trader or investor who makes trading decisions based on news announcements. We already know this, but news traders rely on short term reactions to use to drive the market in a particular direction. News traders need to become very familiar with the markets they are trading because they need to react quickly to a data release. That being said, news traders also need to be the first to have the, this data delivered to them. So they need a reliable economic calendar, and if you are serious about trading the news, I would suggest you to subscribe to a squawk service.

Squawk services are, well there are services online that they have a live audio feed and they have all the tools a news trader needs to have the data delivered to them first. This means that they have the Bloomberg platforms, they have access, special access to speeches and news releases and they deliver it by audio. But if you’re not, well if you’re just starting with trading the news, a good economic calendar is okay.

Now, by being familiar with the markets, they will know how certain data impacts the currency and which way the market will move. And this is what’s most important when we’re trading the news. Understanding what the data means and how it will impact the currency of each country and how this impact will move the currency pairs, that you are currently analyzing. This means that you have to know that a positive impact on the U.S. dollar will make the Euro U.S. dollar decrease. But for the time being, we are just defining what a news trader is and on the next lesson, I’m going to show you why we have a negative correlation between the Dollar and the Euro U.S. dollar. And for that matter why we have a negative correlation between the GBP U.S. dollar and the U.S. dollar or a negative correlation between the Japanese Yen and the U.S. dollar Japanese Yen or the Euro Yen or a positive correlation between the Euro and the Euro U.S. dollar.

And it may sound a little bit complicated but I’m telling you from now, it’s very simple and you will understand it very quickly. But, let’s go back. But what I need you to understand here is that you need to familiarize yourself with the markets you are trading, the news you are expecting or the news you are waiting to be released and how this news will impact the currency. Meaning if you have a positive data, being released, how you will react on the currency pair you’re trading if you’re going to buy it or you are going to sell it. And that only comes with practice.

Defining the News

It all comes down to understanding if the data being released is negative or positive for the economy. If the data is positive, it’ll instantly appreciate the currency because of buyers coming in the market. And if the data is negative, the currency will be depreciated by the sellers and the immediate bear pressure. Now, this is what a news trader is. This is the best definition you will find of what a news trader is supposed to do, is supposed to know, and how is he supposed to react to the news being released.

There is one other thing that I wanted to talk to you about on this lesson, and that is buy the rumor and sell the fact. And this is a very old expression or trading rule regarding news trading. It’s a very misunderstood rule that doesn’t imply to buy before the news and, on expectations and sell once the data hits the wires, okay. That’s what new traders or newbies think they have to do because of this rule that has been, well it has been in the trading world for decades. It actually refers to a phenomenon, where financial instruments trade up into big announcements and sell short, and sell off shortly after.

Now I’m going to explain to you how this works and how experienced traders take advantage of this phenomena. Let’s say we are watching the Euro U.S. dollars into jobless claims. The jobless claims are unemployment numbers in the United States. And the expectation is that decrease in this number from last week. This is good for the U.S. economy and this means that the U.S. dollar will appreciate from a decrease in unemployment.

So the week now inverse anticipated, can mean that more jobs are being created, the economy policies for calling them natural on the employer are being effective, the economy is growing etc. These are all good and that is for the U.S. dollar. Now, because of this anticipation, the value of the U.S. dollar will increase making the Euro U.S. dollar to drop sharply. This means that people are buying the rumor. The rumor is that the unemployment numbers that are going to be released, in two or three minutes are going to be weaker or are going to be lower than last weeks. This means that the economy in the United States is growing and the value of the U.S. dollar will increase because people are buying into this rumor. But when the actual numbers hit the wires and are in fact lower than last weeks but not as low as expected, the price of the U.S. dollar might flush because the reality didn’t live to the expectation.

Traders are selling the fact, meaning that even though we had better unemployment numbers than last weeks, the U.S. dollar will depreciate or trade lower because people are buying the rumor and selling the fact, okay. And you will notice this when price will sharply, before the announcement to the outside and when you have the announcement and you see that in fact, we have green numbers and the price starts to drop you are going to know that people are selling to the fact and you can take advantage of that.

Here right in we do not front run news. Meaning that we don’t buy the rumor. We don’t buy or sell on expectations. We wait for the announcement to be public or hit the wires and then we react.


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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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