When trading news, there are three questions we should ask ourselves before each trade: Is news important? Is the surprise big enough? And what is the surprise according to market sentiment?
1. What news is important?
The first task is to find out what makes a difference and what doesn’t. The top three pieces of economic data that are potentially market-driven for any country are employment reports, retail sales, and manufacturing and service sector activity data, which are reported by ISM or PMI reports. Also called In addition, gross domestic product (GDP) releases and inflation reports (consumer and production prices) are also tradable. What’s not tradable is badge-like information because there are no solid numbers to compare it to, data is released weekly, and any Japanese or Swiss economic reports are always on the market in general. Emphasis is placed on feeling.
If you are having a hard time figuring out whether data is a bargain, most forex sites will list the effects that every piece of data can have on a currency. High-impact events are what we want to trade with.
2. Is the surprise big enough?
The second question is the most difficult of the three because it is subject to interpretation, but the good news is that the market will usually interpret for you. As a rule of thumb, if the number is much higher or lower than the predicted 5%, it is considered a big surprise, but sometimes a 2% surprise would be enough to justify a major reaction in a currency. Is.
So what should you do? Just wait and see how the market reacts to the release. If the currency pair is hard to find, most likely, the surprise is not so important. If the currency pair immediately rises or falls like a rock, there is a good chance that the market was surprised. The key is to wait five minutes before entering the trade to make sure that the currency responds the way it is valued. In other words, a positive surprise currency pair should run as high as possible and a negative surprise should keep it low.
Is. Is the surprise in line with market sentiment?
The third question is important because sometimes there is something in the economic data that we usually expect to see a huge reaction, but for all these reasons the rally breaks out quickly or the traders Don’t care
This is usually when someone else is covering the data and promoting general sentiment in the Forex market. It can range from a hunger for danger to US statistics or concerns about problems in Europe. This is a strong trade if the economic data is in line with the prevailing sentiment in the market or the “basic principle”. In other words, if the market wants to buy dollars and retail sales are strong, this usually provides an even better reason for foreign exchange traders to send more greenbacks. However, if the market is worried about the outlook for the US economy as the Federal Reserve warns that there will be more trouble to come, then good data may not work well for the dollar as it is skeptical. Will be seen
The amount of sentiment prevailing in the market can be difficult to understand, but averages can be helpful as they measure the current trend in the market by averaging a certain number of past prices. If the data is good and the currency pair is trading on a 50-minute moving average 5-minute chart (or the data causes the currency to break far above the moving average), then there is a better chance. That emotions and basic principles will have an effect. Support trade. However, if the data is good and the currency pair is trading better than the 50-day moving average, it suggests that prevailing sentiment does not support the economic surprise. In this case, we will not trade because we want the most important changes to be in our favor.
To summarize, we only want to trade economic data which is important, with surprises that are sufficient to create a reaction in the currency, and only when the economic data market I am according to common sense. With these guidelines, let me tell you how fast and furious the trade in the news is.
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