The Risk of Misinterpreting Forex News

Forex news always appears deceptively simple to interpret, but the impact its has on the underlying currency pair is always almost impossible to figure out.

Forex News Creates Confusion

No matter how a trader chooses to trade the market, even through the best forex broker and trading strategy, confusion is always there. Forex trading is especially tough during forex news release times where volatility creates all sorts of traps. News and economic reports in particular, are very hard to interpret, and as a result the market always tends to move in all kinds of ways during those release times. This is because all other traders themselves find it hard to interpret the data, and their increased trading activity during those times creates all this volatility. Trading the news is often promoted as an easy and popular thing to do, mostly by forex analysts and market commentary websites. But it is wise to treat the news with caution, and approach the market with an open mind on those days. Chances are that the majority of these analysis reports will be wrong, and the market will trade in all kinds of ways, so as to confuse as many traders as possible. As the market always goes from A to B in the most confusing way possible. Therefore it is not wise to expect smooth and predictable trends that everybody knows and talks about. In rare cases, a currency pair can move by 100s of pips in less than an hour, and it is not easy to figure out whether it will move even more in the same direction during the rest of the day, or it will reverse. It is that feeling of ‘missing out’ that finally fools day-traders and makes them lose. So there must be no sense of urgency to join any trend, at any time because this is impulse decision making. Good trading starts with not having any urges.

How to Stay Focused

Traders should forget all about attempting to interpret the news. Those involved in day trading should only trade confirmed forex signals several minutes after and only after the actual release time. Forex news is hard to use in a direct way, day traders however are far better off letting the market move as it wants, during the release times. Then look for reasons to fade the move right after the release times. The best trades occur when the market reverses following a strong in magnitude movement after news was released. Traders can use LSS pivot levels and other pivotal levels to figure out where the most likely reversal levels will be on that news day. Swing traders can use the same strategy, by taking into account the longer term trend. And only fade news-induced momentum when the trade is in line with the main daily trend. All other methods for trading the news may or may not work, but they are certainly much more risky, because there are more unknowns. It is one thing to fade a 100 pip move, where you know you can get out at 100 pips, and quite another not knowing where to get out. The market is so volatile at these times that even LSS pivot levels will be tested to the limit, and even the 3rd LSS pivots may be reached or falsely breached.