Economic news tends to be one of the most important catalysts for short-term movements in any market, but this is particularly true in the currency market, which responds not only to U.S. economic news, but also to news from around the world. With at least eight major currencies available for trading at most currency brokers, there is always some piece of economic data slated for release that traders can use to inform the positions they take.
There are scheduled economic news releases that are due to be released throughout the day. These can be found in advance in a number websites which are providing economic calendars. There are three types of news; yellow, orange and red. Each has a different impact and is all explained in the calendar. The reason why you shouldn’t trade the economic news releases is that they can impact the market to move in both directions before settling down.
Have you ever wondered why markets move so much before a news release? Quite simply, it’s because of massive amount of traders are entering or exiting based on the news release and these traders want to do so at the price they feel is best, and also there are traders who get a head start on market-moving data with plenty of time to execute trades before the general public receives the same information. This causes a relatively large move immediately following a news release.
There are traders who always protects their downside, adheres to strong money management, and protects their account by avoiding the number-one mistake forex traders make, news announcements can offer compelling opportunities for a lot of movement in a very short period of time. But for most of the retail traders trading news announcements can be dangerous, and anyone going into a news release without fear of how badly an account can be ravaged by volatility should probably avoid doing so, and instead wait for quieter markets.
Don’t think about what the market’s going to do; you have absolutely no control over that. Think about what you’re going to do if it gets there. In particular, you should spend no time at all thinking about those rosy scenarios in which the market goes your way, since in those situations, there’s nothing more for you to do. Instead, it is advisable forex traders to act after the markets settles down. The economic news calendar is key tool to help make forex traders aware of when a high importance event is coming out.