If you think about it, this makes a whole lot of sense! Just like in your Economics class, it is supply and demand that determines price, or in our case, the currency exchange rate. Using supply and demand as an indicator of where price could be headed is easy. The hard part is analyzing all of the factors that affect supply and demand. As the economy gets better, raising interest rates may be needed to control growth and inflation.
Higher interest rates make dollar-denominated financial assets more attractive. In order to get their hands on these lovely assets, traders and investors have to buy some U. This increases demand for the currency. As a result, the value of the U.
A manual alternative is to monitor upcoming tradeable events using our economic calendar. These events can all have an effect on market sentiment and cause major price swings within the financial markets. Our market calendar can be customised by date, market impact low to high and country, so you can filter these to be more relevant for the asset or market that you are interested in trading.
You can also set alerts for individual events that you wish to monitor. Trading news releases: what are the benefits? It can help to increase volatility Certain major economic announcements can bring additional volatility in the markets, even if it is for just a short period of time. Even the neatest forex or stock chart patterns can temporarily be thrown out of sync by a significant trading announcement, such as the latest unemployment news or changes to interest rates or inflation from a nationwide bank.
Paying attention to when trading announcements are due can mean that you end up placing a carefully planned trade just before a major event happens, which instantly triggers your stop-loss. It may be more opportune to wait to open new positions after news events have taken place, and then see if the reason for the trade is still valid. It can trigger unexpected market reactions There is normally a consensus amongst leading economists about what level an economic announcement is likely to come in at.
For example, low unemployment suggests a strong economy, so many would expect the stock market to rise. From time to time, however, economic announcements are very different from what the broader market was expecting, and this can cause an opposite market reaction.
For example, if a central bank hints that rate cuts may be coming, but the currency still rises, there could be other factors in addition to the prospect of interest rate changes. This could, in turn, prove to be a strong 'buy' signal. It can indicate that trends are changing Many traders try to identify trends in the hope of profit. Such trends could range across minutes, days or even months. But most trends reverse at some point, and a change in the underlying economics could be the first sign of this.
Every journey starts with a single step and this is true of trend reversals as well. An economic announcement is rarely enough to quickly change a medium-term trend, but how the market reacts to surprises can give the first clue that sentiment is starting to shift. This offers traders an opportunity to open positions at the very start of a new trend.
Practise trading news on the go Seamlessly open and close trades, track your progress and set up alerts Learn more Risks of news trading Of course, there are drawbacks of news-based trading as well. In particular, news trading requires expert fundamental analysis skills, as you will need to understand how certain economic announcements can affect your positions and the wider financial market.
There is also the risk of carrying positions for a longer period of time. If the news release requires a few days or weeks to materialise, your trading positions may be open over several days.
