Forex systems based on trading news should be selected very carefully. The primary reason is that trading during any fundamental announcement or news is one of the most explosive times during a trading session. The market can move 100s of pips in a matter of seconds. That’s why the risk involved is more than trading using technical analysis.
Still, because of profit potential, trading during forex news announcements is one of the most tempting propositions for forex traders. When you are selecting any forex news-based system, please make sure that it covers below mentioned 3 risks –
1. What is the strategy to protect your forex account when the market moves against your trade direction – The beauty of forex news is that it cannot be predicted in which direction it will move. Naturally, a strong strategy must be in place to protect the account in case the market moves in the opposite anticipated direction. If a such strategy is not in place, your complete account is at big risk.
2. How much will be the profit target – The way the forex market reacts to fundamental news is based on a factor of “Expectation”. For example, Let’s imagine that the trader community believes that as per the next Non-Farm Payrolls the unemployment will be 8% as against 6% during last month’s announcement. But when NFP comes out and unemployment is said to be at 7.9%, the market will treat this as positive for the US economy and Dollar will become stronger and the market will move in the USD direction. How much it will move will be based on much better the results are than expectations. The forex news trading system should cover what should be a realistic profit target based on the news results.
3. Is your forex broker cooperative – No forex news system will work if the broker cannot allow you to trade using live prices during fundamental announcements. During some volatile announcements, the currency pair prices are delayed by some of the forex brokers. That’s because they discourage trading news. If that’s the case, then either you drop idea trading forex news or you must choose a new broker.