There’s more than one and only one way to trade the news that comes out of the Forex market. Most reasonable people understand that this is not the case and that they need their own unique strategy to trade the news effectively.
Generally speaking, when the news comes out over the wires, it is quite common for there to be a spike in volatility in some form or fashion. The price of specific currencies will surge in one direction or the other based on the news and other factors. This is why you can look at news events and your strategy for handling them in one of two ways:
- With a directional bias
- Without a directional bias
Those who have a directional bias will expect the market to move in a certain direction when a piece of news is released. They anticipate what that news will be, and they are going to trade based on their pre-assumed notions of what they pictured the news was likely to be.
Consensus Estimate Versus the Real Data
One of the key figures that one will need to look at is the consensus number of a certain piece of data versus what that number actually turns out to be. While analysts might forecast a different number individually, there will be a common number that a majority of them agree on.
This number is called a consensus.
The consensus number and the actual number are rarely perfectly aligned, and that means that opportunities can be had in the market. When the real data is significantly off from the consensus data, the market may correct in one direction or the other very rapidly. Money can be made in that volatility, but newer traders may want to stay out of the way as the market can move very violently during these times.
Buy the Rumor, Sell the News
Another common trend in the market is to purchase certain assets based on rumored numbers related to the data, and then sell those assets when the real numbers come in. This is known as buy the rumor, sell the news, and it is an important thing to consider when trading. Not every trend is worth following, and there is a chance that you may do better to sell off your assets right after or just before a major data release.
The rumored numbers that are batted around may not have any reflection in the reality of the data that is ultimately released. If you find yourself getting too caught up in the rumored numbers instead of looking at the true data, then you may discover that you are focused on the wrong figures, and this may lead you to make poor trading decisions that are inaccurate based on the data that actually appears in the market.
Another popular way to trade the market is to look at it from a non-directional bias point of view. You know that big news is going to happen in the market, so why not focus on simply trading that news in any way that you can? In other words, accept the fact that big news will take place, and don’t have a particular directional bias as far as which way it is likely to move the market. Simply accept that it will move the market, and set up your trades so that you can profit from it either way that it goes.
If you align your trading strategy in this way, then you can set yourself up to profit no matter which way the market happens to get carried by the news. That can be a very big deal when you are trying to profit and not have to worry about predicting the market too accurately ahead of major news.