These days, technical analysis is all the rage for day traders, but this trend does not mean trading news events should be avoided entirely. Instead, traders should wait for these events to occur so that the rest of the market has time to respond to these events in a clearly defined fashion. In fact, there are many traders who are very successful and base most of their trades on news information and economic data releases. These “fundamental” traders are successful in many cases because this type of trading information can give a very clear indication of where currency prices are heading during the session. But the difference between successful and unsuccessful trading in these cases can be seen in the ways traders react and position themselves before or after the market information is made public.
“The most successful cases can be seen when traders are well aware of which types of data will be moving the market during the respective trading session” said Haris Constantinou, currency analyst at TeleTrade. “This can be done using the economic calendars that are made freely available by forex trading brokers.” Traders need to be watching the market movements as these releases are unveiled to see if the general reactions match the direction of the data. The next step in trading these events comes with identifying which currency pairs will be most heavily affected by the released data. Generally, data out of the US will have a large effect on the US Dollar, European data will have a large impact on the direction of the Euro, and so on.
Setting Trade Parameters
Once the initial reaction has been seen and the relevant currency pairs are selected, traders need to watch to the actual movement of prices to determine whether or not a clear trend is in place for that currency pair. If an uptrend or downtrend is clearly defined, all of the important and relevant pieces are in place and a trade can be initiated. The reason this process should be honored is because this is when all of the evidence is tilted in one direction – both the fundamental and technical aspects of the equation point to a single direction. When this is the case, trades can be executed because the odds point to a highly-probability outcome. This is essentially the “perfect storm” for forex trading as all relevant aspects are suggestive of a more certain result.
There are some key advantages that can be seen when approaching markets from this perspective. When we are able to successfully combine all of these factors, our trades are able to attain higher probability levels when we compare the approaches taken by technical analysts or this with a purely fundamental perspective.
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