Pros and Cons of Forex News Trading Strategies

Trading Strategy

The Forex market has always been rapidly growing, especially thanks to the affordability and accessibility of internet access and the growing investment opportunities provided by Forex. Whilst it’s accessibilities are advantageous, it’s obvious there are significant investment hurdles such as market fluctuations, leverage, and other investment strategies–it is also one of the most unstable. In other posts, I’ve explained how Forex traders use two forms of analysis: fundamental and technical; however, I did not go through very thoroughly the advantages of news release analysis and how they can effect Forex trading.

If you think about it, a small retailer or individual investor has a small advantage–he/she can respond almost instantaneously to news releases rather than those hedge fund, mutual funds, and large conglomerates who will probably havoc trouble executing their investment strategies in response to news releases. It’s clear that the market can readjust into a different mold every minute simply because of news releases and so investors who respond the quickest capitalize the most.

Naturally, you’ve got to interpret which news is relevant and whether or not they impact the foreign exchange rates. News from other countries can play an equally significant role in your exchange rates, especially those that are paired. If you are considering this analytics perspective, pay close attention to the following eight major currencies who have significant impact on overall stocks:

  1. Euro(EUR)
  2. Japanese Yen(JPY)
  3. British Pound(GBP)
  4. Canadian Dollar (CAN)
  5. U.S. Dollar(USD)
  6. Swiss Franc(CHF)
  7. New Zealand Dollar(NZD)
  8. Australian Dollar(AUD)

The US currency plays a huge role in Forex transactions, since 90% of transactions are backed by the USD. Data collected on USD currency is regularly updated based on intervals effecting both large and small investors. Subsequently, these investors may be able to capitalize on short-term price fluctuations due to news regarding the following indicators:

  1. Interest rates as decided by banks and policy makers
  2. Gross Domestic Product rates
  3. Trade balances
  4. Unemployment information
  5. Surveys analyzing consumer confidence
  6. Sales in Retail and Manufacturing
  7. Outlook survey analysis regarding manufacturing and business confidence
  8. Inflation

Forex trading based on news releases implies short-term capitalization of fluctuations occurring in the market. Due to the speed at which the market changes, it might become disconcerting if the investor chooses to invest on a risk after the market has already adjusted to its newly effected scenarios. It may already be possible that those conglomerates already have access to the information before it has been released–the small-time investor will respond too late and will suffer loss.

It’s clear that there are advantages for quick responding to market fluctuations based upon news releases, but don’t exclusively over-rely on it since the market may have already adjusted. This is the prime reason why people take advantage of lengthy fundamental analysis and trusty technical analysis for both long-term and short-term gains.

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