Having the answer to things like “where will the EUR/USD move to by the end of the day” would be worth a few pips in anyone’s book. More than likely a whole lot more than a few. Anybody with the power to tell the future would make a pretty fine forex trader!
Nuisance is, the capability to foresee the future isn’t included in my range of super-power, so I utilize more down-to-earth methods to spot trends. One of the biggest weapons I have in my forex trading arsenal is a solid insight of the value of trading the news.
There is a lot of argument about which is the best trading strategy to use. Technical analysis or news trading. Dart chucking even gets a mention in some circles. I’m open to most ideas but I prefer to have actual money in my trade accounts so I don’t think I’ll be using the dart system anytime soon.
I get my best results from trading breaking news. Catching an early trend, has opened some of the wildest, most moneymaking waves in my currency trading career. Yes, there have been some that didn’t work out exactly as planned, but overall, news trading has been how I paid my bills for many years.
Defenders of the technical analysis systems might argue that third-party information isn’t an accurate enough way to trade. I say bull-dust. Breaking forex news drives mass currency movements in both directions and catching a trend early is as good a way to almost guarantee profits as anything I know of.
Take a quick example. The Somewhere Land Central Bank decides their national currency is overpriced. An overpriced currency makes exports expensive, cutting down on export demand and ultimately leads to declining manufacturing output. Why make stuff nobody is going to buy? Falling production means less jobs, increased welfare costs and less spending cash for consumers. Not really what the Central Bank gurus had in mind for poor old Somewhere Land.
To counter the rise, the Central Bank sells local currency on the markets. A lot of currency. Billions. End result? Your dollar (or Canadian Dollar or Pound) is suddenly worth a lot more of Somewhere Land’s currency.
Had you caught the trend, then you would be trading as near the peak as possible. You probably won’t be in on it (unless you are on speaking terms with somebody within the Central Bank of Somewhere Land) so the next best thing is to get on the bandwagon as soon as the news breaks. The news breaks, you open your trades.
While you’re joyfully accumulating pips (and profits), the technical analysis traders are looking at their indicators trying to figure out where the next move is coming from. By the time their analysis catches the pattern, our forex news trades are making cold, hard cash for our accounts.
One of the sticky points for selecting a forex broker has to do with their level of news services. Your broker might well have the best applications, lowest spreads, best leverage, but if their level of news reporting is mediocre – you’re missing out on the big movers.
All the major trading houses around the world have dedicated news trading teams. They know the value of getting in while the going is good and fresh, so trading the forex news plays a big part in their overall strategy.