As we all know, Forex news trading is an important factor for doing fundamental forex trading well, so it is becoming increasingly necessary for traders to understand what news Forex traders should make full use of in order to know what are happening in the market and thus taking proper actions against any unexpected changes that may possibly cause losses to them. Now I will list two ways of news Forex traders can use.
Directional Bias News for Forex Traders to Know
Having directional bias means that you expect the market to move a certain direction once the news Forex report is released. When looking for a trade opportunity in a certain direction, it is good to know what it is about news reports that cause the market to move.
Consensus vs. Actual
Several days or even weeks before a news report comes out, there are analysts that will come up with some kind of forecast on what numbers will be released. As we talked about in a previous lesson, this number will be different among various analysts, but in general there will be a common number that a majority of them agree on. This number is called a consensus.
When news Forex traders actually get, the number that is given is called the actual number.
Keeping track of the market consensus and the actual numbers, you can better gauge which news Forex traders would react against the market.
Non-directional bias News for Forex Traders to Know
More common news Forex traders should know is the non-directional bias approach. This method disregards a directional bias and simply plays on the fact that a big news report will create a big move. It doesn’t matter which way it moves. What this means is that once the market moves in either direction, you have a plan in place to enter that trade. You don’t have any bias as to whether price will go up or down, hence the name non-directional bias.
Directional bias News Forex Trading Method
The important thing to remember is to always take a step back and look at the overall picture before making any quick decisions. Now that you have that information in your head, it’s time to see how we can trade the news with a directional bias.
Let’s stick with our unemployment rate example to keep it simple. The first thing you would want to do before the report comes out is take a look at the trend of the unemployment rate to see if it has been increasing or decreasing. By looking at what has been happening in the past, you can prepare yourself for what might happen in the future.
Imagine that the unemployment rate has been steadily increasing. Six months ago it was at 1% and last month it topped out at 3%. You could now say with some confidence that jobs are decreasing and that there is a good possibility the unemployment rate will continue to rise.
Since you are expecting the unemployment rate to rise, you can now start preparing to go short on the dollar. Particularly, you feel like you could short USD/JPY.
One of two things could happen at this point. If the unemployment rate drops then the dollar could rise. This would cause USD/JPY to rise and your trade would most likely not trigger. No harm no foul! Or if the news is as you expected and the unemployment rate rises, the dollar could drop (assuming the entire fundamental outlook on the dollar is already bearish).
If you want to have a directional bias news forex trading, it is very important for you to truly understand the concepts behind the news report that you plan to trade. If you don’t understand what effect it can have on particular currencies, then you might get caught up in some bad setups.
Forex trading strategies are not only designated with various brainstorms and skills to win in the market, but also guarantee not to lose. It is widely spreading with the funny joke that forex traders take forex trading strategies as flipping a coin: “I flip a coin and I will get 50% of chance of winning. If I am really good at flipping coins, I will make more than 50% of winning trades and I will make money”.
Are forex trading strategies as simple as that, developing a way of better flipping coins? As sound as the proposal sound, forex traders lose money because of that. The reason is that the bid ask spread skews forex trading strategies.
The bid ask spread for the most traded currency pair EURUSD is 2 pips. And the currency quote of EURUSD is 1.2615 for the bid and1.2617 for the ask. If the next quote of is 1.2616-1.2618, will you make money if have placed an order at the current price? Despite the raise of theforex rate, you still lose money using these kinds of forex trading strategies; you will lose 1 pip, since you buy at 1.2617 but sell at 1.2616.
You will only make money if the forex quote raises more than 2 pips and you will lose money when the forex quote raises 1 pip, stays the same, or drops 1 pip. In other words, your forex trading strategy solely depending on the rise of the forex quote is a big mistake. What makes forex trading strategies profitable is not about whether the currency pair moves along your way, but how much the currency pair moves along your way.
Let me paraphrase. Successful forex trading strategies are not about whether you are betting on the correct price movement of the currency pair; successful forex trading strategies appear so if the price movement of currency pair is significant enough to cover any bid-ask spread occurring in the process.
Successful forex trading strategies are crystallized with hard efforts, energy and a great deal of practice to build, which is even ture for the best traders in the forex market. Statistics put it that 95% of the traders in the market fail to make money. Unfortunately, that’s true. However, the deep-rooted problems lies in a total lacking understanding what are successful forex trading strategies and when will they work effectively. An underestimate of forex trading strategies is the primary reason they fail. If you want to be the 5% of the better traders, put down your airs on the forex trading strategies, just be reasonable and take time and do the research before settling too quickly on some strategies you come up with. Test the forex trading strategies on the demo account and on forex simulator since real work takes time.
Technical Forex analysis serves as a basic way to learn the situations and conditions in the fore market, usually in the framework in which traders study price movement, which displays historical price movements so as to aid traders to determine the current trading conditions and potential price movement.
Theoretically, the main evidence for using technical Forex analysis lies in that all current market information is reflected in price. If price reflects all the information that is out there, then price action is all one would really need to make a trade.
Well, basically what technical forex analysis is all about that history repeats itself! If a price level held as a key support or resistance in the past, traders will keep an eye out for it and base their trades around that historical price level. Technical Forex analysts look for similar patterns that have formed in the past, and will form trade ideas believing that price will act the same way that it did before. You may look at past data to help you spot trends and patterns which could help you find some great trading opportunities.
Technical Forex analysis has long been regarded as the most important way of to tell where the forex market is heading next by reflecting historical pricing data of the certain currency pair.
Does Technical Forex Analysis Really Work?
Researchers have been skeptical of technical forex analysis. However, research focused on foreign exchange markets has shown unusually large profits driven by technical analysis.
The underlying reason for the effectiveness of technical forex analysis in forex markets may, therefore, be that the priorities differ between major players. Unlike unpredictable equity markets, central banks have a strong incentive to keep currency prices at certain levels, which may make price movements more predictable, especially when they intervene.
Key Factors in Technical Forex Analysis
There are several key considerations to take into account when developing a technical forex analysis-based trading system for the forex markets, according to the aforementioned studies on the topic. Here are a few key points to keep in mind when developing a system:
Use Neural Networks to Optimize Systems. Neural networks have the ability to identify obscure patterns in data, which makes them perfect for foreign exchange markets. As a result, most of the current research on the subject centers around neural networks.
Moving Averages and Logarithmic Returns. At least one study suggested that moving averages and logarithmic returns are the two best inputs for foreign exchange trading models, particularly when analyzing CHF or JPY.
Technical forex analysis is widely acknowledged to be quite efficient and effective in the forex market. Its success mainly lies in its relatively accurate predictability of interventions seen largely in safe-haven currencies by central banks. But the emphasis will still be laid on the fact that you get full access to the concepts under technical analysis, so you will possibly avoid getting nosebleeds whenever somebody starts talking about Fibonacci, Bollinger bands, or pivot points.
GBP/JPY ended with an irregular double bottom pattern recently, it retraced back upwards when it is trending around the neckline 125.2. However, the rate of GBP/JPY resumed its downtrends after reaching the UP of Bollinger Bands. Now it is possibly going upwards after the constant confirmation in the past 5 weeks. Temporarily, the weekly, daily moving average and MACD line are all moving upwards above the zero line; the rate may possibly keep trending upwards and Forex traders should figure out more opportunities to go long and make profits. Resistance: 129.7 and 131.8; support: 128.8 and 128.2.
USD/JPY retraced back upwards soon after the Asian secession opens; on Tuesday this week, the currency pair ended with a spinning top and on Wednesday, USD/JPY started to retrace back upwards. Temporarily the daily moving average and MACD line are both trending upwards above the zero line on the 4H forex chart. Meanwhile, if Forx traders observe from the weekly forex chart, the rate almost reaches the high of the inversed hammer showed last week. In conclusion, the USD/JPY is showing great possibilities for traders to obtain profits if they go long. Resistance today: 80.4 and 80.8; support: 80.1 and 79.9.
The USDX ended with a spinning top yesterday after showing a small candle with a long tail at its downside. Temporarily an inverse head and shoulder pattern has been built on the daily Forex chart of USDX and traders should pay attention that whether the USDX would be able to break out the neckline 80.2 and make their trading decisions accordingly. Resistance: 80.2 and 81.0; support: 79.9 and 79.4.
AUD/USD failed to break out the resistance level 1.0410 yesterday, but it showed a spinning top after reaching 1.0410. Now, Forex traders should pay attention that whether the currency pair would show opportunities for traders to make profits if they go long on the 1H forex chart; if the AUD/USD does retrace back upwards in the Asian secession, the there are great possibilities the rate of AUD/USD break out the line 1.0410 and move around the 1.0480, which is both the upper side of the descending parallel channel and the 261.8% Fibonacci extension level. Resistance today: 1.0410 and 1.0480; support: 1.0320 and 1.0280.