What Is The Best Way To Trade Forex – One of the great advantages of trading currencies is that the Forex market is open 24 hours a day, 5 days a week (Sunday 5pm to Friday 4pm EST). Since markets fluctuate on news, economic data is often the most important catalyst for short-term volatility. This is especially true in financial markets, not only economic data from the United States, but also news from around the world. Here, we take a look at which economic data is released when, which data is most important to traders, and how traders can act on this market-moving information.
Most financial brokers have at least eight major currencies available to trade, so there is always a set of economic data available to traders for informed trading. In fact, the next eight most important countries publish seven or more pieces of data every working day (excluding holidays). So for those who choose to trade news, the opportunities are plentiful. Most traders are familiar with eight major currencies:
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A currency that can be easily traded anywhere in the world. This means you can get access to the currency and economic data that you are particularly interested in. However, as a general rule, U.S. economic data tends to have a greater impact on business markets, as the dollar is on the “other side” of 90% of all financial transactions.
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Business news is harder than it sounds. Not only the reported consensus figures are important, but so are the whisper figures (unofficial and published projections) and any revisions to previous reports. Furthermore, some versions are more important than others; this can be measured in terms of both the importance of the data published by the country and the importance of the publication in relation to other data published.
Figure 1 lists the approximate times (Eastern Time) of the most important economic releases for each country. This is also a time when forex market participants pay special attention to the market, especially when trading is based on news releases.
When it comes to business news, you first have to know what you actually expect to publish during the week. Second, understanding what data is important is also key. Generally, the most important information is related to changes in interest rates, inflation and economic growth, such as retail sales, manufacturing and industrial production:
Depending on the current economic situation, the relative importance of these releases may change. For example, unemployment this month may be more important than business or interest rate decisions. Therefore, it is important to grasp what the market is focusing on right now.
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According to a study by Martin D. D. Evans and Richard K. Lyons published in the Journal of International Finance and Finance (2004), markets can also elicit or react to news reports in the days or even days after a number is released .
The study found that the effects on returns typically occurred on the first or second day, but the effects appeared to persist through the fourth day. On the other hand, the impact on the flow of buy and sell orders was also very noticeable on the third day and on the fourth day.
The most common way to trade news is to look for a period of consolidation or uncertainty ahead of a flood of data and trade a breakout behind the news. This can be done in a short period of time (intraday) or in a few days. Let’s take the chart in Figure 2 as an example. After weak September data, the euro held its breath ahead of October’s data, which should be released to the public in November.
EUR/USD was confined to a tight trading range of 30 pips in the 17 hours leading up to the release. (A pip is the smallest change in a currency pair in the stock market, and since most major currency pairs are priced to four decimal places, the smallest change is to the last decimal.) News traders, this will be provided. A great opportunity to make a breakout trade, especially since the potential for big swings is very high at this time.
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The above chart with two horizontal lines forming a trading channel illustrates the uncertainty and uncertainty leading to October’s nonfarm payrolls, which were released in early November. Note that volatility increases once numbers are released.
We mentioned before that business news is harder than you might think. Why? The first reason is change. You may make the right move, but the market may simply have no incentive to sustain it.
Let’s take the chart in Figure 3 as an example. The graph shows the same post-launch activity as shown in Figure 2 (but on a different time frame) to show the difficulty of business news releases. The November shock sent the dollar down nearly 60 pips against the euro in the first 25 minutes after the release.
However, the dollar was strong and the bulls quickly reversed, with EUR/USD breaking past lows an hour later and hitting a 1.5-year low against the greenback. There are plenty of opportunities for breakout traders, but the dollar’s bullish move is so strong that so much negative currency has failed to prevent a sustainable currency rally. One thing to remember is that behind a good number, a strong movement should also see a strong extension.
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The chart above shows that while the weaker-than-expected non-farm payrolls data pushed EUR/USD prices briefly higher, the strength of the dollar was able to control and push higher. Remember, when the dollar appreciates against the euro.
A potential reaction to mitigating volatility without having to deal with volatility risk is to trade large options. Great options often have barrier levels, and depending on whether breaking the barrier level will be profitable or unprofitable. The payout is predetermined and the premium or amount of the option is based on the payout. Here are the most popular types of great options for trading press releases:
There are two barrier levels for the two-touch option. Either stage must be violated before completion in order for the option to be profitable and for the buyer to receive payment. If the barrier level is not reached before expiration, the option will expire indefinitely. The two-touch option is perfect in exchange for a press release, as it’s a breakout game that isn’t purely directional. As long as the barrier level is breached – even if the price is certain to reverse later – the payment is made.
The one-touch option has only one handicap level, which makes it a bit cheaper than the two-touch option. Same goes for it – payment is only made if the barrier is breached before the end. This is a good option if you have an accurate view of whether this number is stronger or weaker than the consensus forecast.
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Currency options are a viable option for those who don’t want to get caught up in the market through false volatility before actually seeing the spot price move in the desired direction; a handful of forex brokers offer several different types of currency options.
The non-double-click option is the exact opposite of the double-click option. There are two barrier levels, but in this case, none of the barrier levels can be breached before expiration – otherwise the option will not be paid. This option is ideal for thinking that economic releases will
Equities are particularly sensitive to short-term moves brought on by economic news releases from the U.S. and the rest of the world. If you want to successfully trade news in the stock market, there are several important considerations: knowing when reports are expected, knowing which releases are most important to current economic conditions, and, of course, knowing how to trade stock movement data on the basis of this . . Do your research and stay on top of the economic news, and you too can be rewarded.
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