News trading with Forex Factory using the economic calendar.
6How to use the Forex Factory economic calendar.
Forex traders, especially day traders (discover more about day trading) use Forex Factory to keep up to date with the news that moves the forex market. Fortunately, Forex Factory collects all the upcoming economic data, aggregate forex market data, and major news events and put them into an economic forex news calendar. The Forex Factory calendar is especially important in an example like the below when there is a FOMC meeting, major news event or any other big economic news announcements like non-farm payrolls (NFP).
The forex factory news calendar, a highly active forex forum, looks as follows:
There are 10 columns in the forex news calendar. Here we highlight the important ones.
Currency: The currency code for the forex pairs most likely to be affected.
Impact: How likely this data item is to cause a big move in the forex market. This is where you will get lightning fast forex news.
Detail: will give you some more information about how this data item works.
Actual: The data when it is released is shown here.
Forecast: What the consensus forecast is from economics polled by Reuters or Bloomberg. You can know how market participants are reacting to certain data releases here and use past performance to gauge future results and market moves.
Previous: What the result was in the previous release, normally the previous month.
Graph: This shows you how the data has moved over time and is useful to see the trend.
Apart from these features, the calendar also allows you to change the time zone to your local time.
How to trade with the Forex Factor economic calendar.
The next step is trading the forex market for professional forex traders using the economic calendar. To do this we need to understand how economic data can impact the forex market. Using the news to trade forex is called fundamental analysis.
To learn more, try reading our blog What is fundamental analysis?
However, a deep understanding of what each data point means or an ability to do economic forecasting is unnecessary for forex trading success by trading the news. This type of trading strategy is known as ‘forex news trading’.
News trading using Forex Factory.
News trading involves buy or selling a forex pair the moment news comes out. The economic calendar on Forex Factory is a useful tool for seeing when the news arrives.
Bearing in mind the Forex Factory calendar is free to use so there can sometimes be a lag. A Bloomberg Terminal would almost certainly deliver the news quicker, but it costs thousands of dollars per month, something most retail traders cannot afford. If there is a lag, use an alternative news source as a backup option or if the currency price has already moved, then skip the trade.
How to trade the news.
Forex traders compare the actual data result with the forecast as well as the previous reading. All else being equal the economic news should affect the currency as follows….
If the actual data beats (is better than) the forecast then the related currency will move up If the actual data misses (is worse than) the forecast then the related currency will move down.
Let’s take an example from the previous economic calendar:
Here, Canada (CAD) CPI has seen a shock decline from the previous month as well as missed the forecast. I.e. the 0.5% Actual is lower than the Forecast of 0.7% and the Previous of 0.6%.
Forex Factory ranked this as a high impact news event. The result of this data should be to send CAD lower.
To trade the Canadian dollar we trade the major forex pair USD/CAD .
So if the CAD is expected to weaken, we buy USD and sell CAD. i.e. we buy USD/CAD.
News tab on Forex Factory.
Of course, forex trading is not as simple as the above example and extra precautions should be taken. For example, Forex Factory also has one of the most popular places to find economic news and financial market news on the internet.
Before trading the news, the forex trader might do well to read market analysis about the Canada CPI data release before it comes out. this can be found on the ‘News’ tab on Forex Factory.
In this example, ING Bank produced an article previewing the economic data release. Other features can also be useful supplementary information such as the Forex Factory sentiment indicator.
News trading strategy using Forex Factory.
Certain risk management parameters should also be decided before the example trade in USD/CAD. This can be done with a price chart like those available on the FlowBank trading platform . And of course, this is not exclusive to one forex pair. GBP/USD would be affected by GBP announcements and EUR/USD affected by EUR announcements etc - and all will be affected by USD announcements such as US GDP data.
USD/CAD price chart (1-minute timeframe)
Here the trader can use some basic technical analysis of support and resistance to pre-determine entry and exit point for the trade before the news is released.
Required information for the trade:
Trading Strategy:
The News is released at 14:30 News article on Forex Factory suggests a miss is possible so prepare buy (long) entry Trade entry will be a market order based on the 1-minute candlestick at 14:30.
Trade Entry & Exit levels:
The stop loss could be set underneath the two recent lows on the candle chart The take profit order can be at the recent high.
Trading Decision.
Wait for news to be released If the data misses as expected, place the market order If the data comes in line or beats, no trade.
How to start news trading with forex.
Trading the news is a basic trading strategy that is accessible to beginner traders as well as experienced traders but time and practice is needed to get it right. A demo trading account provides the perfect venue to practice such a trading strategy before trading live.
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