Trading the news is a very powerful tool, even within the Forex market. There are some definite benefits to trading in this manner, but it’s certainly not a guaranteed profit. You will still need to do a lot of work to be successful, but a lot of people find this type of work to be a lot easier and more understandable. In any case, it is a bit of knowledge that you can add to your arsenal of tools when it comes to making money in the Forex market. It becomes especially useful when used in conjunction with other methods of analysis, especially technical indicators.
News trading involves looking at current events and then extrapolating that information to use with your trading. When trading currencies, there is a ton of information that you will have at your disposal, but only a small fraction of that info will actually be helpful for you. Really, there are only a few things that you need to worry about. And while it’s still a large amount of information, focusing on just the important things will help you to streamline your search and make educated decisions a lot faster.
First, look at international relations. This is a very broad topic, but it can be broken up into two segments: politics and economics. The political international scene examines how different governments get along. For example, the U.S. and England get along very well politically. This influences how smoothly the GBP/USD pair interacts. Good political relations between countries means better movement of currency with less sharp increases and decreases. In other words, good politics equals smoother motion between currencies.
Economics are also important. For example, let’s look at GBP/USD again. A good economic outlook in England with lots of new jobs, a good gross domestic product number, and competitive loan rates is a good thing for Great Britain. But now look at the U.S. and see what’s happening there. Even if the economy isn’t in awful shape, but it’s in worse shape comparatively than England’s, the dollar will likely go down against the pound. It’s a game of comparisons, not of hard truths. The U.S. economy can be at its strongest point ever, but the simple fact is that if the pound is stronger, the dollar will fall in price against it.
The next step is to branch out. Sure, the dollar might be going down against the pound because of news factors, but how does that same piece of news affect the EUR/USD pair? It might not, but odds are it probably does, even if it’s in a small way. That’s the beauty of trading the news within the Forex market. One piece of news can affect many different pairs. Making the most of this will only help you to make bigger profits down the road. However, you will need to learn which pieces of news will translate into profits and whether or not the profits will be big enough for you to spend your time pursuing. This is a skill that you will need to develop over time, but once you perfect it, it will be a very lucrative skill.