How do you trade the forex market when news comes out

As we know almost every day data comes out. Some of these data releases can have a big impact on certain pairs. Before trying to trade the release of any data you better prepare yourself. Because trading a news release can be very profitable but can be disastrous if unprepared. How can you be ready?

First of all have a look at the calender and decide which news releases you will be trading. Not all data releases have a big impact. Some releases have a short term effect others have a long term effect from days till weeks. Because of the risks involved you want to trade the data releases that have the biggest impact. Why? Because of the typical high volatility when data comes out. You can't trade a news release with a small stop. The high volatility will always hit your stop. Furthermore we want a target price that is at least 2 times that relative big stop. So we are going to trade with a big profit target....so we need big price movements....so we need to trade the important data releases.

High volatility => requires big stop => profit target at least 2X big stop => we need big price movements

The perfect tool for checking out all data releases is the following website.

>>>>>>>>>>> http://www.forexfactory.com/ <<<<<<<<<<<<<<

This website gives you all the information you need. They tell you which release will have a big impact and on which pair. And of course they give you the exact time the data will come out.

Now that you know when to trade and on which pair lets have a look at the different techniques you can use.

Break out strategy

If the pair is ranging before the data is released then you have the ideal circumstances for a breakout strategy. The smaller the range the better. Why does this work so well? Well because a lot of traders will be using the same strategy and therefore enforcing the breakout. It is one of the most used strategies on the forex market. There are of course also “false” breakouts where the pair fails to continue its direction after the breakout. In that case the breakout receives a boost because a lot of traders are trading the breakout strategy. But soon reality kicks in. Is there a fundamental base for the breakout or not? In case that fundamentally there is no base the breakout will often die and the pair will go back into the ranging zone. Does that necessarily mean that you will loose in case of a false breakout? Not at all. When the breakout has enough momentum you will have the opportunity to put your stop on breakeven or even with a small profit.

false breakout, only loss it stop wasn't moved	don't take a position to fast, going long here would have been a losing trade

A common mistake is to buy to fast when the pair hits the upper range or to sell when it is close to the bottom of the range. Make sure you clearly see that it left the range with a descent number of pips. If you have that dream breakout and the pair continues its move start moving the profit target and stop loss in the direction of the move.

The trick is to keep the pair between that stop loss order and that take profit order. In this case you want to maximize your profit and at the same time you want to protect the profit you already have. In this case 50/ 100 pips or more are achievable targets.

When it isn't ranging before the news comes out

This is a lot harder to trade. The trick in this case is to distinguish a move of the pair in a direction with a move that is actually volatility. How can you see the difference? Again patience is the key. Don't take a position seconds after the news release. The first moves are volatility anyway. Look at the size of the next candle that is being formed. Don't take any position if its size isn't bigger than the last 5 candles. If its size is smaller than the last 5 candles.....it is just volatility (noise)....it is not a move. Once the candle is big enough you can take a position. Your stop should be about ½ of the size of the current candle. The target should be at least 2X the stop loss but preferably at the next resistance level. Again try to move the stop an the stop loss as soon as possible.

Before trading the news you should try it on a demo account. Protecting you account is the most important thing and with these big price movements you can't be careful enough. So trade with a small position size. Always consider the worst case scenario. Imagine your internet connection fails...do you have a stop loss? So place your stop loss immediately after taking any position!