How to Assess and Trade Forex News

To trade forex news data, the trader has to pay great attention to volatility, and less attention to market direction. Forex news creates the illusion that the market moves because of the effects that this or that news story has caused. But this isn’t so. The market trend as seen on the daily charts, can never change and reverse, in a single day. Not for any reason! And because news is released into the market on a daily, intra-day basis, it cannot change the established daily trend. All it can do it cause a deviation, at most. Day trading forex live is all about watching volatility, momentum, and little clues on price direction. But volatility is easier to figure out through the news release times. Because all markets tend to trade quietly, or in a mean-reverting way just prior to news release. And after the actual release, all hell breaks loose as volatility skyrockets. During this increased volatility traders know that there will be false breakouts, false breaches of pivots, and all kinds of misleading trading action. So instead of being worried of missing out on the action, they focus on the daily chart. If the fast moving market is moving in the direction of the daily trend, it may or may not be a good idea to jump in. If it is moving against, it is a superb idea to look to jump in, in the direction of the daily trend. Hence actually minimizing the impact of the news. That’s how wise traders trade forex news, and simply don’t care what this or that news number means. These news numbers are impossible to make sense of anyway. Only amateur traders attempt to predict market direction based on the news. And they end up being wrong and losing money about 80% of the time. Because the logic involved is flawed. They see news as a binary event, which can only have 2 possible outcomes. But in reality, news items  are not binary events, and they can produce 8 or more outcomes. Market price tends to sweep across all 8 or more possible market price levels, hence the wild volatility. The only binary outcome here is the progress of probability, as the number of possible outcomes doubles for every additional risk factor. If one more binary unknown is involved, the possible outcomes increase from 8 to 16, and so on.

How to Trade Forex News on Probability

To trade forex news directly on direction, is impossible. Nonetheless one can get around that using the properties of the daily chart discussed above. Though this requires extending day trading into a more relaxed, and longer term strategy from time to time. Though Forex trading live can be very profitable on these principles alone, what traders need is boldness and experience. A cool forex trading business opportunity appears almost every other day in the markets, based on volatility. Knowing how news creates this volatility, helps time it much better. Beyond that, it’s good to know that the supposed probability analysis mentioned above is based on the assumption that news is binary, perceived as either bad or good by the market. But if each news is perceived as a 3-outcome event, which is even more accurate, then things become much more complicated, and volatility becomes much more relevant. In reality, the binary assumption is most of the time correct, it works just like the 3-outcome event in most cases. Except in the few cases where a news number, is exactly identical as the last time it was reported. For example the CPI inflation number, is a piece of news which is possible to remain unchanged over two consecutive reporting times, but it’s very rare.