FUNDAMENTAL TRADING

Trading the News – Forex Trading Strategy

So far we have discussed many Forex trading strategies that allow us to analyze the price action from many different angles. These strategies give us the technicals but there's one factor that always has the potential to make all of the technicals irrelevant and just take the market in every way that it likes. Big announcements or news coming out of different countries can have a huge effect on the market, rendering all our analyses meaningless.

The Forex market is a 24-hour market and news can always come in from all over the world. Trading based on economic news and data can fit any kind of trader wherever he might be and whichever currencies he chooses to trade. If you're in Asia and like to trade the YEN, then there's news from Japan almost every day. If you like AUD or NZD then you have to watch out for news out of Australia, New Zealand and China. Same goes for EUR, GBP and USD; you have to check the news during the morning and the afternoon if you live somewhere close to European time zones.

In stocks, major news is considered the announcements of company earnings, profits, profits per share, industry, macro-economic data etc. In Forex, news that moves the markets is Central Bank minutes and members press conferences, inflation reports as well as national and international economic news and data. One of the first lessons for new traders is that when trading you should keep out of the market during major news releases. Nevertheless, we often find ourselves trading during the news and most of the time it's not simply a matter of greed. Some like the adrenaline, some are addicted, but the majority of traders just like the profits. After all, we are in this business to make money and the risk is just a necessary aspect of that.

Trading currencies always involves two currencies, so when a trader plans to open a position both country's upcoming news should be taken into consideration. Other international news that can potentially affect the pair should be considered too. For example, if you decide to trade AUD/JPY, apart from valuating possible outcome of the news out of Japan and Australia and the effect that it might have on the pair, you should consider important upcoming news from Europe, USA or elsewhere because that news might give a shock to the financial markets. For example, if there was really good economic data released from China, the pair would rally because it means that demand for Australian products will most likely increase. The opposite would happen if there was really bad news from Europe; it would shock the global financial market and the traders would run for safe heavens like YEN and CHF.

Below are the most important economic data and news and their effect on the country's currency if the numbers beat expectations:

GDP   –> (+) Good

Unemployment Rate –> (+) Bad

Inflation (consumer and producer prices) –> (+) Good

Interest Rates –> (+) Good

Trade Balance –> (+) Good

Retail Sales –> (+) Good

Services and Manufacturing PMI –> (+) Good

Consumer and Business Sentiment –> (+) Good

Unemployment Claims –> (+) Bad

Home Sales –> (+) Good

Now that we've established the importance of understanding the news and the effect it might have on the price, we have to learn how to use news releases to our advantage. There are two ways to trade the news, long term and short term.

Long Term News Trading

When looking for long term trading opportunities based on economic news we should try to collect the previous and current data and analyze it to see the bigger picture and the effect that it might have on the currency. The long term trends are created by fundamental factors, which are many economic pieces over a certain period of time, because sometimes news needs days and months to be absorbed by the market.

Looking at the GBP/USD chart below we can see that an uptrend started to form a year ago and it has been a one way journey since. Similarly EUR/GBP has been in a downtrend for about the same period. But these things didn't just happen out of the blue. The economic data that came out of Britain during the past 2 years or even longer has made this possible. Most of it has been pointing out a recovery of the British economy way before the trend started to form. If a trader read and analyzed the data correctly, he/she would have bought the Pound during last summer and pocketed about 2,000 pips.

GBP/USD weekly chart demonstrates a year-long uptrend which could have been foreseen by analyzing the news out of UK.

EUR/GBP weekly chart similarly shows a downtrend that could have been foreseen by understanding and analyzing the news out of UK.

Sometimes the long term trends are created by a single news event, especially when that event is what the market is most sensitive to at that moment. Such was the case when the ECB announced it would expand the monetary policy, would cut Refi rates and introduce negative deposit rates. That meant that more Euros would be in the market and we know that when something is in excess it becomes cheaper. The market was waiting for that event for quite some time. We see from the chart below that Euro fell about 160 pips during that day and about 500 pips in total. It has formed a downtrend since then, breaking level after level with no technical being able to stop it.

Only a big news event can affect the market in such a way, the price breaks every support level lying in its way on its long way down.

Short Term News Trading

Trading news intraday is a bit harder because of the volatility and tighter stops. Usually 1-2 minutes before and after there are whipsaws, with price moving frantically in both directions. Short term news trading is split into several strategies which we will now go over:

Selling bad news spikes – One way is to sell the spike after a worse than expected news or vice versa. Sometimes even after really bad data the price jumps for a few seconds or minutes. That's the best time to sell, especially if it's at some big level or resistance. After the FED Chairman Yellen failed to deliver on the Tapper on June 18, which is dollar negative, USD/CAD jumped 30 pips to 1.09 only to reverse on a 150 pip fall.

Momentary peak follows news that should cause a downtrend, indicating the best time to go in short.

Buying after bad news – Because of past good data a pair forms an uptrend. Though sporadic, worse than expected news cannot be ruled out, it won't affect the overall outlook of the situation. So after the initial fall we should look to buy the knee jerk reaction. This happened to the USD/CHF on June 25 when the US GDP was much worse than expected. The pair had been in an uptrend for about two months with really good data, so one piece of news wouldn't change this by itself. The pair fell about 30 pips immediately, and then bounced right back.

Bad news don't always lead to a long downtrend, the fall can be momentary and then the price starts pushing up back to its previous level.

Trading breakouts – Prior to important news, the price often gets confined in a tight range, uncertain of which direction it should take. This scenario is best traded with pending orders on both sides, sell a break below and buy a brake above. It's advised that the orders be placed considerably away from the range, so that we avoid whipsaws. The chart below shows a good opportunity on USD/CAD on June 23 when retail sales and inflation CPI came out much better than expected.  

Price gets stuck in a range before the big news announcement and then suddenly jumps in one direction after the news is announced.

News anticipation – Anticipating the news and reading price action is not easy to do but like all things, it gets easier with experience. It's a very profitable strategy and personally I really prefer this strategy over the other ones. On May 1st at 8:30 am GMT there was manufacturing PMI to come. The market consensus was for a lower read but with the recent good data, chances were that the expectation would be exceeded.  Looking at the 15 min candle on GBP/USD right before the release, it jumped some 25 pips, which suggests that the data will beat expectations and so it was. So I bought during that jump and locked it at breakeven. Then the news came and the rest is history.

First candle jumped 25 pips, indicating that the news would be better than expected.

The same happened on April 16 with the GDP numbers. The 3 hourly candles prior to the release were really bullish, pointing to better than expected data. So I bought in the middle of the second candle and closed some profit in before the news release. After the news it popped another 60 pips.

Each candle is more bullish than the one before, great opportunity to make an easy profit.

Trading the news is actually not only another Forex trading strategy to add to your arsenal but another method of trading Forex altogether. In order to fully master Forex trading this must of course be combined with other Forex trading strategies that rely on technicals rather than fundamentals and you should place trades based on all of that data, factored together.

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how to trade fundamental

• Trading news is dangerous as wild and erratic price movements can extend against the trader
• Traders need to be vigilant with risk management, looking to capitalize when on the right side of the move
• We share three different types of strategies for trading during news

The big day is here, and the Non-Farm Payrolls report that much of the world has been waiting for will finally be unveiled tomorrow morning at 8:30AM in New York.

News announcements of this nature can take on a life of their own with the amount of interest they receive. But it’s important to note the danger and risks of trading on such events. Nobody in the world has any idea the way that NFP will print… and even if they did, there is no way of knowing exactly the way that the market will price that data.

What follows are three ways that traders can look to trade around high-importance news announcements like NFP.

But, before we get into the strategies, I’d like to stress the danger of trading in such environments. Many professionals choose to avoid trading during high-impact news announcements just because of how dangerous or erratic they can be.

If you’ve never traded during one of these events, or if you don’t feel comfortable taking on the extraneous risk that is inevitable with such a high-impact announcement, trade on the demo account or sit on the sidelines. There is absolutely no shame in having fear of a market; this is what helps keep traders alive. Bravado or machismo is absolutely worthless if you drain all of your equity. You can get a demo account completely free-of-charge at this LINK.

The ‘Slingshot’ Strategy

This strategy looks to capitalize on the mayhem that may ensue during an especially strong print. In this strategy, the trader wants to look to go into NFP with their full position(s), so that if the volatility created around the announcement may be able to push their trade deeply into profitable territory, they can look to take advantage of that.

The slingshot looks to scale out of winning positions as the trade moves in the trader’s favor, and a variety of entries or entry strategies can be used to trigger the initial position.

Support and resistance identification is a necessity before opening any positions. Traders can also take this a step further by looking to the hourly or four-hour charts to determine any trends that may exist leading into the announcement. This way, if the biases going into NFP take place after the data is released, the trader can be on the right side of the move.

Support and Resistance is so important because that’s the ‘cut point’ with which the trader can close off the position if prices are going to move too far against them. Stops for long positions can go below support, and stops for short positions can go above resistance so that if either of these levels are broken, the loss can minimized.

The Slingshot looks to capitalize from extended moves in the trader’s direction

Created with Marketscope/Trading Station II; prepared by James Stanley

Traders can even incorporate a technical-trigger into the trade with an indicator like MACD like we had explained in the article, MACD as an Entry Trigger.

A key note here: Traders are advised to investigate stop distance on their positions ahead of a data announcement as heavy as NFP. Spreads can widen very quickly as market makers don’t want to take a loss on the print just as much as retail traders. When spreads widen, stops can be triggered before prices begin trending and this can be disastrous for the trader.

Imagine the scenario in which you went into NFP with a long EURUSD position carrying a 20 pip stop… If spreads widen out to 40 pips, that would trigger your stop and execute the stop order ‘at best.’ This could entail additional slippage beyond your 20 pip stop.

But, if prices then trend up 150 pips on the EURUSD you have no position remaining even though you were right in the long position.

Unfortunately, it’s impossible to know how widely spreads might spike during any given news release, NFP especially. Traders generally want to investigate a minimum stop distance of 40 pips or more, and even then quick volatility may make the position vulnerable.

This is but another reason that trading in news environments is so dangerous; but the potential rewards could be huge if the trader can find themselves on the right side of the position, and that’s what the slingshot is all about.

If the trader is able to navigate this terrain without getting a stop hit, that’s where the slingshot comes in as traders can scale out of profitable positions as prices may surge in their favor.

The News Reversal

Trading reversals is inherently dangerous in a normal environment; but when adding in the additional risk around news announcements, it can make this type of strategy very dangerous.

Strong money and risk management is a requirement for success in these environments, because you’ll never be sure of which reversals may follow-thru.

Like the Slingshot strategy, traders want to go into the release with support and resistance levels identified. Then they wait for the news.

In the immediate period following the news announcement, the trader can watch prices to see if those longer-term support or resistance levels come into play. And if they do, the trader watches to try to get an idea as to whether or not those levels are going to hold.

The News Reversal

Created with Marketscope/Trading Station II; prepared by James Stanley

Price action can be of huge help here. Traders want to see support coming in to the market at these longer-term levels before triggering a long position with a stop below support. The key here is fitting in tightly so that if the reversal doesn’t play out, the position is taken out quickly. But if that support level does hold, the trader can begin scaling out once the position starts moving in their favor in an effort to capture as much upside as possible.

The ‘Use the News’ Long-Term Strategy

Non-Farm Payrolls can be a game changer. A big beat or miss can stop a trend dead in its tracks and create massive reversals.

But this doesn’t happen every month. In many cases, enormous volatility is created around the announcement with perhaps some slight follow-through thereafter; only to see trends resuming their previous trajectory.

This can potentially be a huge opportunity for longer-term traders to pick up or add positions at a much more favorable price than they would have otherwise been able to. Let’s look at an example for more clarity.

Let’s say that Joe is bearish on the EURUSD for whatever reason. Perhaps he’s just a really big USD bull, or maybe he’s a non-believer in the European Recovery. Whatever the reason, Joe knows he wants to get short EURUSD.

But after spending a month confined to a meager range near long-term support, Joe hasn’t had a compelling entry opportunity in the pair.

Joe can go into NFP looking to do some bargain-hunting. He can look at his longer-term chart to establish some resistance levels in which he’d like to sell if prices can make their way up there.

The next step in the process is to wait for the news to come out to see if prices can move up into this resistance zone so that Joe can enact an order.

The ‘Use the News’ Long-Term Approach

Created with Marketscope/Trading Station II; prepared by James Stanley

Once price moves into resistance, Joe can begin looking to sell with a stop above the resistance zone. Traders can look at a shorter-term chart to look for price action indications of bullish or bearish reversal patterns to increase the potential effectiveness of the strategy.

--- Written by James Stanley

James is available on Twitter @JStanleyFX

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Use the News

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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06 March 2014 20:00 GMT

• Related Articles
• Previous Articles from  daily trading lesson

• Jul, 10 17:10 GMTForex Sentiment on USDCAD at -2.7 Suggests Higher Exchange Rate
• Jul, 10 13:26 GMTForex Reversals: USDCAD Remains Supported
• Jul, 09 19:30 GMTWhy Forex Traders are so focused on the Next Move in USDJPY
• Jul, 08 20:30 GMTVolume & Sentiment Alignment on AUDUSD Favors Downside
• Jul, 08 13:36 GMTEURUSD Pre-News Range

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A Biblical Overview of Money and Wealth

The Bible offers timeless and practical advice about managing your finances.

So what does it say about money and wealth? Is it right or wrong, good or bad? Wealth itself isn't the problem—though our attitude toward it can be.
People who believe in the Bible hold widely divergent views about what it says—including what it says about money. Some view money as the root of all evil and believe that poverty brings one closer to God. Others accept a health-and-wealth gospel, believing Christians are almost automatically destined to become financially successful if not fabulously wealthy.
So what does the Bible actually say on the matter? Is money good or evil? To lay a foundation for managing one's finances, we must begin by considering whether it is proper for Christians to accumulate wealth.
Wealth and the Bible
The first time the Bible mentions someone with a lot of money, it speaks of a righteous man, Abraham, who "was very rich in livestock, in silver, and in gold" (Genesis:13:2). Later we find God promising that through this man's descendants all nations of the earth would be blessed (Genesis:18:18; 22:18; 26:4). Abraham was wealthy, but he was also "the father of all those who believe" (Romans:4:11).
God is not opposed to riches. In fact, He is the originator of financial blessings (1 Samuel:2:7; Proverbs:10:22) and reminds us that personal diligence can also lead to wealth (Proverbs:10:4).
When we have more money than we need for normal expenses, we are wise to save some for later use. The Bible speaks well of the saver, noting that the ant wisely stores up food for the winter (Proverbs:6:6-11





). It speaks favorably of someone who would provide for his children and grandchildren: "A good man leaves an inheritance to his children's children, but the wealth of the sinner is stored up for the righteous" (Proverbs:13:22).
Indeed, we should consider that having more money puts us in a better position to help others in need. Poverty, on the other hand, limits our ability to help others.
Spiritual traps to avoid
The positive examples just mentioned, however, do not give the whole picture. The follower of God who wants to make money while continuing to follow God must avoid certain spiritual traps. It becomes easy, as a person accumulates worldly goods, to look to money—rather than God—as a source of protection and stability (Proverbs:18:11).
The apostle Paul talked about money and temptation: "Those who desire to be rich fall into temptation and a snare, and into many foolish and harmful lusts which drown men in destruction and perdition. For the love of money is a root of all kinds of evil, for which some have strayed from the faith in their greediness, and pierced themselves through with many sorrows" (1 Timothy:6:9-10

).
It is from these words that many get the idea that the Bible teaches that money is the root of all evil. However, Paul wrote something considerably different —that "the love of money is a root of all kinds of evil." Money itself is not evil, but elevating it and material wealth to a greater priority than these should have is a great spiritual trap.
In this passage Paul elaborates on the perspective toward wealth that Jesus had given many years earlier. In speaking of a Christian's proper priorities (Matthew:6:24-33









), Jesus said, "You cannot serve God and mammon" (verse 24). The English mammon is translated here from a similar Aramaic word that means riches, especially riches that turn one's attention away from God. In that sense, wealth is personified as a competing master, which is unacceptable.
While recognizing that people have physical needs, Christ emphasized that our chief priority must always be God. Jesus taught, "But seek first the kingdom of God and His righteousness, and all these things shall be added to you" (verse 33).
Paul's comments to Timothy teach us not to make a god of money or to allow it to come between us and our Creator. Money is simply a tool that can be used for either good or bad. The key lies in our attitude.
Paul adds this advice for the wealthy: "Command those who are rich in this present age not to be haughty, nor to trust in uncertain riches but in the living God, who gives us richly all things to enjoy. Let them do good, that they be rich in good works, ready to give, willing to share, storing up for themselves a good foundation for the time to come, that they may lay hold on eternal life" (1 Timothy:6:17-19


, emphasis added throughout).
Can we seek wealth and eternal life?
On another occasion, a young man asked Christ what one must do to inherit eternal life. After Jesus told him he must keep God's commandments, the man responded that he had kept them from his youth (Mark:10:17-20



). "Then Jesus, looking at him, loved him, and said to him, 'One thing you lack: Go your way, sell whatever you have and give to the poor, and you will have treasure in heaven; and come, take up the cross, and follow Me.' But he was sad at this word, and went away sorrowful, for he had great possessions.
"Then Jesus looked around and said to His disciples, 'How hard it is for those who have riches to enter the kingdom of God!' And the disciples were astonished at His words. But Jesus answered again and said to them, 'Children, how hard it is for those who trust in riches to enter the kingdom of God! It is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God'" (verses 21-25). (See also The Eye of a Needle .)
Notice the disciples' reaction when they heard Jesus' comments about how difficult it was for a rich man to enter the kingdom: "They were greatly astonished, saying among themselves, 'Who then can be saved?' But Jesus looked at them and said, 'With men it is impossible, but not with God; for with God all things are possible'" (verses 26-27). Eternal life is a gift given to those who humbly seek God (John:3:16; Romans:6:23; Ephesians:2:8-10


). Everyone, whether rich or poor, must rely on God's mercy for eternal life.
A lesson in priorities
Jesus explained that eternal life is a spiritual issue of paramount importance. The wealth of the man was not intrinsically wrong. But his misplaced priorities—his improper attachment to material wealth—was. Christ perceived that the man was more interested in his money than God. Indeed, the young man was despondent over Christ's words "and went away sorrowful, for he had great possessions" (Mark:10:22).
Some try to twist this episode into a lesson about the inadequacy of God's commandments, which the young man claimed to have kept from his youth—arguing that Jesus was introducing a new standard of righteousness. Yet the reality is that Jesus challenged the young man's commitment to the commandments by testing Him on the very first one, which forbids having any gods before the true God. Clearly, the young man placed His wealth before God.
This passage does not imply that the rest of us must give away everything we have—unless, that is, we too have a particular problem with placing a higher priority on our possessions than on God. Of course, God will require other sacrifices of us. In any case, it's important for us to submit to Him wholeheartedly.
God has revealed in His Word, the Bible, all essential knowledge that people need to come into harmony with His ways in both spiritual and physical matters. He has given His people specific instructions for supporting the poor (Deuteronomy:14:28-29

; 15:1-2; 26:12-14). His Word even gives instructions for how His people should provide financially for His annual religious observances (Deuteronomy:12:17-18

; 14:22-27).
Jesus took the lesson of spiritual and financial priorities a step further. Mark 10 continues: "Then Peter began to say to Him, 'See, we have left all and followed You.' So Jesus answered and said, 'Assuredly, I say to you, there is no one who has left house or brothers or sisters or father or mother or wife or children or lands, for My sake and the gospel's, who shall not receive a hundredfold now in this time—houses and brothers and sisters and mothers and children and lands, with persecutions—and in the age to come, eternal life'" (verses 28-30).
Here, Jesus promises physical and spiritual rewards for putting Him first. So He clearly is not against prosperity—provided we don't make it the highest priority in our lives.
Keeping priorities straight can be quite a challenge for people who have been blessed with material goods. The rich must not glory in their riches (Jeremiah:9:23). We must remember Christ's instruction regarding our priorities: "Lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. For where your treasure is, there your heart will be also" (Matthew:6:20-21

).
People are prejudiced
People can be prejudiced about money. Sometimes the wealthy despise the poor, and sometimes the poor despise the rich. Jesus did not hold such biases. He ate with tax collectors and those looked down on as sinners, was called their friend and ministered to the poor (Matthew:9:10; 11:5, 19).
Yet He showed no partiality and could also be found with the rich (Matthew:27:57; Luke:19:1-10









). A wealthy man so admired Jesus that he buried Him in his unused family tomb (Matthew:27:57-60



). Jesus Christ died for all of humanity, regardless of anyone's social or financial standing.
The Scriptures we have just reviewed show that money is neutral—neither good nor bad. Our attitude toward it, however, is important. Money tests our allegiance; it makes apparent whether we are committed to God or to our possessions. At best, money is a tool we use for important purposes. In the next chapter we will see that Christ taught that a Christian has financial obligations—to God and fellow man.

‹ Introduction: Managing Your Finances The Eye of a Needle ›

Contents

• Introduction: Managing Your Finances
• A Biblical Overview of Money and Wealth
  • The Eye of a Needle
• Meeting Needs Beyond Our Own
• Keys to Successful Money Management
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What advice does the Bible offer about wealth and our attitude toward it? Is money really the root of all evil? Do you know what God thinks about bankruptcy? What does the Bible say about charitable contributions? How much should we give? Be sure to read this booklet to discover biblical answers to these important questions and more.

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You are viewing a page from

What advice does the Bible offer about wealth and our attitude toward it? Is money really the root of all evil? Do you know what God thinks about bankruptcy? What does the Bible say about charitable contributions? How much should we give? Be sure to read this booklet to discover biblical answers to these important questions and more.

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