Trading the News as a Forex Trader

No matter what your technical analysis may tell you, it’s fundamental economics that drive the currency markets. Being in the know of these events, strengths, and weaknesses and upcoming economic factors can give traders a massive edge in the forex markets. With that being said, trading news as a forex trader is not easy and very few traders can do this consistently. In fact, many traders get caught on the wrong side of new releases.

So, in this article, we are going to look at exactly how you can trade the news as a forex trader! Let’s get into it…

Trading The News As A Forex Trader – How Do You Do It?

Forex trading is about much more than just drawing trend lines on a chart – it’s primarily about the fundamental economics that drive decisions in the markets and influence the value of currencies. To give yourself the best possible edge in the markets, it’s important to at least be aware of how the news can impact your trades. There are, on average, around 15 high-impact news releases per week, 99 medium-impact new releases and over 300 low-impact news releases – all of which have the power to influence every single trade you take in the markets.

So, we have 3 options when it comes to the news as a forex trader…

• Ignoring it
• Combining the news with price action
• Setting clever orders when the news is being released

Let’s weigh up these options…

Ignoring All Forex Related News

Our first option is by far the easiest. This is the option that 90% of forex traders tend to lean towards – just ignore the news completely. This means that you will, for better or for worse, stay in all trades during news releases and just see what happens. You would know your edge in the market over thousands of trades and just play that edge. We’ve all been in trades before where price suddenly flies 100 pips towards your take profit or stop loss. This is usually because of a news release. We wouldn’t necessarily recommend ignoring the news completely, as this can leave you exposed to a huge amount of risk that you’d be unaware of.

Combining Price Action With News Releases

This option is the most favored by forex traders around the world – using the news in addition to price action confluences. What does this look like? 

An example would be here, on USDCAD. You can clearly see a supply zone on the 4H time frame, using conventional technical analysis. We also knew that there was going to be the Unemployment Rates released on this day… 

Dropping to the lower time frames, you can clearly see the impact the news had on the price of USDCAD, after touching this order zone. Now, price action and technical traders would claim that this trade won purely due to the price being inside the supply box. Fundamental traders would claim that the price moved purely down to the unemployment rate numbers, and they would be right! 

However, this doesn’t mean that you should be a purely fundamental trader. If you had combined both technical and fundamental analysis here, you could have entered a short position at the supply zone and held the short through the news release, then into the break of the low.  

I’d highly recommend conducting hundreds of back tests of news releases and see how price reacted to simple technical analysis during the process. This is certainly an important step in creating a bulletproof trading strategy to pass a prop firm challenge.

Trading The News Specifically With Orders

Our last option when it comes to trading the news is to solely wait for news events to be upcoming, for us to get involved in the markets. It must be noted that this is by far the riskiest way to trade forex, and you can easily blow through your trading capital in minutes. 

In fact, this approach is more like gambling, than anything else. Let’s look at an example…

Here is the impact of the JPY Interest Rate decision, just before Christmas in 2022. If you had set a bullish pending order above market price and a bearish below, your bearish order would have been triggered, and you would have made a huge number of pips as profit.

Doing this on high-impact news releases could yield great results… sporadically.

However… Typically, you’ll notice that price whipsaws, and you would get triggered on both your buy and your sell.

Compound this with the fact that you’re going to be getting a large amount of slippage on your trades, this means you’re likely to lose 3-4R. This will lead to giant levels of drawdown and bring a huge amount of psychological pressure along with it, making it nearly impossible to objectively trade in this manner. Again, this is something that should be heavily back tested before deployed on demo or live trading capital, as the risks are huge. If you’re looking to reduce losses in prop firm trading and become a funded trader, this isn’t for you.

Why Should You Avoid Trading News As A Funded Trader?

We’ve learned that trading the news can be both advantageous and disastrous. Although it can create spectacular

opportunities for traders to yield great returns in a matter of minutes, the risk can often outweigh the reward. When it comes to our funded traders, we’d highly recommend for traders to not get involved in high-impact news events. This doesn’t mean being flat at the time of release, but not actively setting pending orders around the news releases. The reason for this is simple… If you blow through your funded account’s maximum loss, which is entirely possible with the increased volatility and slippage potential, it’s a long process to get funded again. You’d have to spend weeks, if not months, getting back to the size of capital that you’re currently working with. All of that, for one single trade where you’d most likely scale down as the risk is too large.  

This, in our heads, makes the trade-off too risky, and we’d certainly recommend for traders to avoid playing around with the news releases!

On the flip side, it’s highly advantageous to be aware of economic strengths, policies and upcoming events to give yourself the best possible edge in the markets.

In Summary – How Do You Trade The News As A Forex Trader?

In conclusion, trading the news releases as a forex trader is extremely risky, but using the news to help build your confluences will potentially give you a great edge in the markets. We’d highly recommend that you back test and even paper trade alongside the news releases over the coming months and look at how the market behaves against your usual technical analysis.

Are you looking to get funded? Work with Lux Trading Firm now!