Every month while the FOMC news release, we see some sudden movements.
These movement are usually big and sometimes over 100 pips.
The question is can we trade such movements? In other word, can we trade the FOMC news?
I’d like to tell you how to trade forex using the news like FOMC, and also any other news that makes the market move
However, before that let me tell you that professional traders don’t think about trading these kinds of news.
Some swing traders use the long-term economic news to trade.
However, in most cases, the news like FOMC, create nothing but noise.
If you don’t believe what I say, just take a look at the daily candlestick when there is a news release.
You will see that there is no significant change on it and the daily chart is moving on the way that it moved.
So the movements that the news creates, are usually noise, not meaningful and trade-able movements.
Usually a few hours after the news, the market goes back to the direction it was following.
I don’t trade news personally because there is no reason to do that.
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Our Regular Trading Style
We are making decent profit through our regular trading style:
Why should we want to trade the news as a day trader then?
I always try to control my greed and make it limited.
The reason is that greed is the most important cause of the traders’ failures.
We can make money through my own investment style in the currency market.
Therefore, we don’t have to think about making some pips within a few minutes after a news release.
News release time is a risky time to trade.
Market movements are not predictable.
On the other hand, in many cases, the brokers are unable to (or don’t want to) execute the limit and stop loss orders during the news release time, and this can be a disaster.
You may have already seen many other articles about news trading.
They usually encourage you to trade forex during the news release time.
However, please note that most of the screenshots you see on those articles are from the best possible conditions and movements that a news release might have created.
Such movement cannot form anytime that there is a news release.
However, it doesn’t mean that we should not even know how to trade the news.
Just in case someone asks about it, we should be able to help the questioner to make/lose some money during the news time.
News Trading for the Forex Day Traders
So here is the news trading strategy based on the day trading style.
that I don’t recommend at all, because it works only on the paper, not in reality:
When there is an important news (like FOMC) on the way, as we don’t know what direction the forex market will choose, we should place pending orders.
About 20 minutes before the news release, we should find the last high and low on 5min chart.
Usually the forex market becomes so slow a few hours before the news release.
It moves in a narrow range.
This range has a high and a low. On the below chart, which is the GBP/USD 5min chart, the last high is 1.6560 and the last low is 1.6505.
You should place a buy pending order 10 to 20 pips above the last high (line #2), and a sell pending order 10 to 20 pips below the last low (line #4).
Your buy order’s stop loss will be few pips below the last low and your sell order’s stop loss will be few pips above the last high.
The other thing that your orders should have, is a trailing stop loss.
You should have a 20 pips trailing stop loss.
So when your position is 20 pips in profit, it moves the stop loss to breakeven.
Then, for each pip that your position moves to the favorite direction, your stop loss will be moved one pip further.
Stop loss will keep a distance of 20 pips with the market price until the market changes the direction and triggers the stop loss.
The last thing is that as soon as one of your pending orders is triggered, you should cancel the other one.
Some platforms support the OCO orders.
OCO stand for One Cancel Other.
It means when one of the pending orders is triggered, the other one will be cancelled automatically.
This is how you could trade today’s FOMC and make about 40 to 50 pips.
The Other Side of News Trading
But news trading is not always profitable.
Sometimes market goes up and triggers your buy order.
But then it goes down and hits the stop loss before your trailing stop moves the stop loss to breakeven.
We use a 10 to 20 pips filter above the high and below the low to avoid this but sometimes it happens.
Also sometimes brokers’ servers will not be able to move the stop loss orders.
They can’t even execute them because of the sever overload they have during the news time.
The other thing is that, if you learn to analyze the charts properly and trade the long time frames like daily, weekly and monthly, then you automatically trade the strong news and fundamentals too.
The reason is that, all the strong signals that form on the charts, whether they are according to the candlesticks patterns, or support/resistance breakout, are because of the news and fundamentals, and also the big transactions that central banks perform.
Some of them are accessible to the public, but some of them are not.
In spite of this, you see their impacts on the price charts.
Therefore, if you learn to follow the charts signals and setups, it would be enough for you.
I have to emphasize once again that something that the Forex day traders claim about news trading (I already explained it above), is not applicable even on the demo accounts.
You can’t make money using such methods and through the shorter time frames.
The Right Way to Trade the News
They say it is the news that moves the price.
This is true on one hand, but it is false on the other hand.
It is true because the news reflects the strong economic factors that impact the markets, including the Forex market.
But it is false on the other hand because it is not just the news that makes the price move.
When it comes to news trading, then there is only one important rule that you have to follow:
Only the news that can make the price move in long-term, is the reliable news to trade.
The news like FOMC that makes the markets noisy for few minutes, can’t be trusted for trading and making profit.
Therefore, if we are supposed to trust the news that impacts the markets in “long-term”, then we have to follow the longer time-frames like daily, weekly and monthly.
It means, we shouldn’t care about the news release time.
It doesn’t matter whether we are at the computer when the news is released or not.
For example, when the central bank of a country increases the interest rate, it causes the value of the currency of that country to go higher.
It can keep on going up even for several years, as long as the central bank doesn’t decrease the interest rate.
This is a how a strong and important news like the interest rate, works.
It helps us take proper positions and make money.
Forget about the other news and the other ways of trading the news.
Avoid the Forex Market Crooks
If you are new to Forex trading, you are a good prey for the scams to rip you off.
They can sell their useless trading strategies, systems, and mentor-ship courses to you.
But they have never made any profit even with a demo account.
So be careful.
If you’ve heard from one of these crooks that you can make money by following the news and using the shorter time-frames like 5 or 15 minutes, then you will lose a lot of money and will waste a lot of time if you follow him.
You can’t make any money like that at all.
Make sure to follow the right people and the right trading strategy: Trading Strategies Don’t Work If You Don’t Choose the Right Living Strategy
4 Lies About News Trading You Probably Believe
1) Fundamental traders who trade based on the economic news and statistics;
2) Technical traders who trade based on the technical analysis.
This is somehow offered to you as an option when you want to start learning to trade forex. You can choose whether you want to be a news trader or a technical trader.
Some people prefer to become a news trader because they believe it is easier, and probably makes more money. Some others prefer to become a technical analysis trader, because they think they will be able to locate more trading opportunities (trade setups) on the charts, compared to news trading that they have to wait for several days to have an important news to trade.
Many novice traders have wrong mentality about the news and news trading. You can be one of them. So before you start trading the news with your real money, you’d better to think more. Here is the lies that you may hear about news trading:
1. You Can Trade the News as an Intraday Trader and Through the Short Time Frames Like 5min
This can be possible on the demo accounts, but not on the live accounts.
The reason is that usually when there is a strong news that moves the price reasonably, the spread goes up and down a lot during the news release time. At the same time, the price also goes up and down frequently, or chooses a direction and follows it very fast.
If you set pending orders, they either will not be triggered at all, or if triggered, the entry price will be much different from the level you set the pending orders. As far as I have seen, this difference is usually against you, because – for example – when you set a buy pending order and the price starts going up suddenly because of the news release, within a few seconds it passes the level you have set your pending order, and so, the broker will not have enough time to trigger your order. It will be your turn to trigger your order when it is usually too late and the price is much higher than what your pending order was set to. Therefore, either your order will not be triggered at all, or it will be triggered much higher than your pending order level.
You have to add the spread to this price movement too, because usually the spread also goes up dramatically during the news release time and several minutes after that. Specially market maker brokers try to exaggerate and increase the spread a lot more than that it has to be.
All of these bad events are really normal to happen during the news release time, even if your broker is a good ECN/STP broker that doesn’t want to make you lose, and just wants to route your order to the liquidity providers. What if your broker is a market maker broker which is determined to make you lose? They do their best to make your news trading orders to be ended with loss. They do it with your other orders too, but they can make you lose more during the news release time. News release is a good opportunity for them to wipe out their clients’ accounts. They have a lot of ways and tools to do that.
You win only when you already have the right position before the news release.
2. Some Brokers Offer a Fixed or a Very Low Spread During the News Release Time
This is possible to do only when the broker is a market maker broker, because a market maker broker is able to control everything, even the spread. They can offer even a zero spread for all of the currency pairs during the news release time. They offer a spread just to look normal to their clients who usually don’t know what a market maker and ECN/STP broker is. A market maker broker main income is not through the spread. It is through the traders’ losses.
Real ECN/STP brokers are not able to control the spread at all. They can add to the market’s base spread, but they can not lower it, because they are electronically connected to the interbanks (liquidity providers) and they route your orders to them. So, you are dealing with the interbanks, not the broker, and it is the interbank that determines the base spread that the broker has no control on it. The spread that the interbanks offer goes up dramatically during the news release time, because they receive too many orders within a very short time, and handling these orders causes the spread to go up too much.
Some ECN/STP brokers add a few pips to the base spread, as the “markup”. They make money through the markup spread. Some of them don’t do this and they only charge a commission which is what they are legally allowed to.
So if a broker offers a fixed spread, it is a market maker broker. It is not possible to offer a fixed spread if they connect you to the real forex market. They offer a fixed spread to attract more novice traders. Offering a fixed spread is just an advertising and marketing method to fool those who know nothing about trading and think that they can turn a $200 account into millions.
3. When the News Actual Value Is Greater/Smaller Than the Previous and Forecast Value, Then the Price Takes a Clear Direction and Keeps on Following It
There are some strict and precise rules about the news trading, but they rarely work in reality.
There is something like this on the sites that list the news and economic data release time:
Actual > Forecast = Good for currency;
Actual < Forecast = Good for currency;
For example if “Non-Farm Employment Change” actual value is greater than the forecast, we expect that the USD price to go up.
But in reality it goes up sometimes, but sometimes it takes the opposite direction. Sometimes it goes up and down and makes several candlesticks with long shadows. If you set a buy pending order and enter by chance and then it goes down and it does not trigger your stop loss, you can lose a lot. It is too risky to trade based on this rules.
4. Most of the Economic News That Are Listed on the Sites Can Make the Prices Move
This is not true too. I know that different news are categorized into different strength levels like “High Impact”, “Med Impact” and “Low Impact”, and so, the traders expect the “High Impact” news to make the prices move always. However, the truth is that sometimes even the “High Impact” news cannot make a reasonable movement on the price. In fact, there are only a few news that can sometimes make the price move reasonably.
Most of the “High Impact” news that you see on the sites are not important for the forex market at all. The risk is that if you trade based on these news and you enter while you think that the price has moved because of one of these special “High Impact” news, it can go against you and trigger your stop loss, because it was not the news that made the price move. It was just an ordinary movement that can reverse easily.
When a strong news really makes the price move toward a special direction, it will keep on following that direction for a reasonably long time, and it will not reverse so easily. This is something that you can see on the forex market very rarely, maybe even less than once every month.
So, Do We Have to Forget About News Trading?
I am not saying that you have to forget about news trading. However, I am saying that news trading is not what most traders think. You should forget about intraday news trading through short time frames like 5min or 15min. As I explained above, it can be too risky and you will be faced with several serious problems. Maybe it is possible to make profit on the demo accounts through the shorter time frames, but not on the live accounts.
Actually, we are all news traders when we follow the longer time frames like daily, weekly and monthly. But through these time frames we follow the news that are really strong, important and effective on the forex market… strong enough to make the price take a special direction for several days, weeks or even months.
If we trade the news through following the longer time frames, we won’t have to be worried about the news release time. We don’t have to be worried about entering the markets right when the news is released, and be faced with the problems that I already explained.
Those important news that I am talking about, can make strong and visible trade setups on the charts. Sometimes we don’t even know what news it was. Sometimes the news result is not accessible to the public, and only the central banks are aware of it. They take proper actions based on the news and the economic statistics they have. These actions make strong trade setups on the price charts. We locate the trade setups to follow the direction the price has already taken because of the central banks actions.
That is how it works.
In general, the price charts and candlesticks reflect all the sentiments, impacts, decisions, actions and directions formed by the market big participants and players. If we know how to follow them, we won’t have to be worried about anything else. Above all, they show us the most optimum and the best entry time and price that are much safer for taking a position, whereas if we want to enter right when the news get released, we can be trapped.
One day, a friend told me that everybody, including all the news networks, economists and… are saying that US economy, and so the USD price, will keep on go down. So let’s take a short position with USD/CHF and hold it as long as we can. I said I would do it only when I see a strong signal on the chart. It was exactly the time that USD/CHF stopped going down and formed a strong buy signal on the monthly chart. Since that time, we have taken so many short and long positions with USD/CHF.
So, another conclusion is that most of the things “we hear” are not true. What “we see” is true. We should trade based on what we see, not what we hear.