Sunday , 20 October 2019

Impact of Economic News Releases on Trading

The financial markets are very dynamic and impacted by different kinds of news and even unexpected events. So, to accomplish trading is necessary to put in context the technical analysis.

In fact, many brokers on their web sites set an economic calendar that shows, hour by hour, the most relevant announcements, forecast and results for indicators from the outstanding economies around the world. One way to begin to trade the news is to look at this calendar every day and to take some time to analyze the impact, forecast and real results.

The content of these economic calendars usually have the next information:

  • Date, time and currency or country: to identify when and where the expected event is going to take place. Usually, Forex traders have to keep up with different countries performance because an exchange rate relates one currency to a foreign one. So this price is affected at least by the development of two nations.
  • Economic indicators: such as, Gross Domestic Product, Unemployment Rate, Inflation, Interest Rates, Retail Sales, Home Sales, Trade Balance, Unemployment Claims, Consumer and Business Sentiment, Services and Manufacturing.
  • Holidays: to know if there will be a market that will not open.
  • Events: describing the situation or information that will be release. For example: European Central Bank President speaks, Business Expectations, Customer Confidence.
  • Actual/Forecast/Previous: related to economic data and specialized indicators showing past and expected value. Once the information is revealed, the tool highlights if the result was better or worse than expected.

Depending on the market you are trading, some information will have more impact than other one. For example, Forex market is much more sensitive to Central Bank announcement than stocks market. When trading stocks, the trader also looks at particular industry indicators and company financial reports. In the same way, according to the term of the trading strategy some news will produce higher effects.

Long Term News Trading

If you are a long-term trader, your focus must be to analyze data evolution in order to get an overall diagnose about a country economy. Therefore, distinguishing fundamental factors from circumstances is important to this type of trading. That means to recognize if a single event may produce an instantaneous impact but lasting for a very short period of time.

Furthermore, one event can affect two or more correlated currencies. For example, during two years, data from UK was revealing an economic recovery. This information point to the national currency will become stronger in long term and so this happens.

To understand the most sensitive factors of a market is crucial in long term news trading because a single event can create long term trends. For example, when the European Central Bank published an expansionary monetary policy and rates reduction, the general anticipation was that the Euro would get weaker. The size of the impact made a continuous downtrend of Euro reaching lower levels that foreseen from technical analysis.

Short Term News Trading

Intraday news trading is more complicated because of the high volatility in price movement, which goes up and down in few minutes. On the following paragraphs, we will see some ways to trade news in short term.

Finding out momentary peaks: Sometimes when the data released is worse than expected, the price reaches a momentary peak. If this momentary peak is found, this will be the best moment to sell, or make a put order on binary options, under the expectation that price will begin a downtrend and because of the bad information already published.

Finding out momentary falls: A determined event can affect negatively for a very short period of time. This happens while the market absorbs the real consequences and perceives that this was not a huge occurrence to change the uptrend, then, price jumps again. So this brief fall is a good moment to buy, given the anticipation that the price will recover previous higher levels.

Work with opposite pending orders: When financial markets are expecting outstanding information, price usually moves through narrow ranges with no clear direction. In this case is better to work with pending orders. This type of orders allows indicating anticipated instructions to run the order at a predetermined price. The recommendation is to put a selling pending order some range under support level and a buying one some range overhead resistance level.
News foresight: It consists in anticipating some news results by reading price performance. So, experience and market knowledge are needed. For example, the chart below illustrates a moment when the market was expecting disadvantageous manufacturing PMI data. Nevertheless, other economic indicators developed better than expected. When the price increased 15 pips barely before the disclosure, the anticipation was to surpass initial negative expectations and so it did.

opposite pending order trading

First 15 minute candle increased 25 pips anticipating better results than anticipated.

GDP impact on Forex market

Something similar happened on April 16, while waiting for Gross Domestic Product results. When the 3 hour timeframe chart showed increasing prices, the anticipation is that the market has positive forecasts. So, by taking advantage of market expectation, some profit could be made during this jump, buying in the middle of the second candle and closing only just before the announcement.

long term candle growth

When each candle is getting higher than the one before is evident to go long

Trading the news is one more available skill for traders to support decisions based on technical analysis in order to get a whole picture of market performance being possible to manage risk in an adequate way as well as to maximize profitable opportunities.

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About Darth Trader

When I left you I was but the learner. Now I am the trading master.

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