Trading the News

Trading the News

Most of you will now be in the process of establishing your individual trading style. There are an assortment of traders in the financial markets, classified by the duration of their trades or the reasoning behind their moves, whether this be technical or fundamental. There are arguments for the importance of both styles of analysis, but regardless of what drives a trader to initiate a trade, the core value in such a move can always be originated in economic news releases. This is the fundamental explanation for why the market is already moving in such a manner.

The economic calendar is a catalogue of advanced news; scheduling releases and forecasting numbers for potentially affected currency pairs or stocks. Each event is organised and ranked into a system that highlights those of greater global economic significance.

When presumption becomes actuality and the data is finally revealed, the market begins to move; taking into play the difference between the predicted figures and those tangible. The bigger the difference between these numbers, the stronger the move the market will make.

The trading environment is extremely dependent on the information released by the central banks. Its significance extends to both the currency and stock market. For instance, conventional wisdom calls for a higher currency when the interest rates are lifted or the message is hawkish, whilst on the general stock market the same conditions are bearish, or negative.

Knowing when the major central banks (that’s the Fed – Federal Reserve of The United States, ECB – European Central Bank, BOE – Bank of England, BOJ – Bank of Japan, BOC – Bank of Canada, RBA – Reserve Bank of Australia, to name a few) release their interest rate decisions and monetary policy statements, is therefore paramount for successful trading.

Additionally, press conferences and speeches are regularly hosted – these are the big unknown. If the actual interest rate decision (according to news release) is neutral for a currency, the following conference may be either extremely dovish or hawkish, swaying trade choices. The outcome is highly unpredictable and responsible for much volatility in the markets.
Secondary to the central banks, the CPI (Consumer Price Index) or inflation, is the release to watch. This is essentially the mandate of every central bank anyhow: fighting inflation or lack of it.

Jobs data, unemployment rate, GDP – Gross Domestic Product, Retails Sales, etc. are also important, but overall market participants only try to gain perspective ahead of the central banks’ next meeting.

My advice when getting involved in news trading is to remember that the first market reaction comes from the robots, HFT (High Frequency Trading), or trading algorithms, because these are programed to buy or sell vast amounts in a matter of milliseconds. This inevitably makes trading more challenging as we live in an age where technology will continue to pave the way towards the future.