Forex News Trading Strategies

In this lesson, I will talk about the different ways how you can trade forex during key
economic news events.
Most common used news strategies:

Trading the Numbers

Straddle the News
Hedging the News

Trading the Numbers

Traders want to take advantage of the discrepancy between the forecasted and the actual
key economic number when trading the numbers. As mentioned before, you need a very
fast news data feed such as Reuters or Bloomberg because you want to get in the trade
before the spike begins.

Steps to trade the numbers:

1. Purchase a fast news datafeed at Reuters or
Bloomberg
2. Track the news consensus and determine the
significance of the economic news report being
released, if it is not important, do not trade it. You will
be able to find all important data on a good data
calendar
3. For each important news release you need to know
how large a discrepancy has to be in order for you to
act on the trade.
4. Finally, watch the news release using your fast
datafeed and trade the numbers.
Example:
UK CPI News Release
"There are three different numbers. There is the month over
month CPI, there is the year over year CPI, and there is the
core CPI.
The most important number that most traders and economists will be focusing on is the
CPI headline year over year number, which is expected at around 2.8%, same as it was
last month.
If for some reason the number comes out at 3.1% or higher, it would set a new high in
many years, and a possibility of a rate hike out of UK will probably be considered
imminent, so GBP/USD may possibly go up by 80 pips or more in the first hour of the
report.
If the CPI reads at 2.4% or lower, it would be a huge drop, and most would probably
assume that the Bank of England will have to think twice before hiking the rate anytime
soon, so GBP/USD may possibly go down by 80 pips or more in the first hour."
Possible scenarios:
If the consensus and the actual number is inline with the market expectations, you would
not trade.
If the actual number is at 3.1% or higher, you would go long.
If the actual number is at 2.4% or lower, you would go short.
Below picture shows what happened that day. The number came out much better than
expected and the GBP/USD spiked up.

GBP/USD CPI news release spike

Things to consider when interested in "Trading the Numbers":
1. You have only 0.5 - 2 seconds in which to act before the spike begins. Not fast
enough? No money for you.
2. You really need to know how to read and interpret the numbers. Wrong
interpretation will cost you money!
3. A fast news service is very expensive and is not recommended when you trade a
small account because it's very unlikely to cover your data feed expenses.
Straddle the News
This strategy is very simple and consists of 2 orders, one to buy a few pips above the
range high and one to sell a few pips below the range low, then wait for the price to
breakout triggering one of your orders. Your stop loss order should be placed a few pips
below the range low when buying, conversely, a stop loss order should be placed a few
pips above the range high when selling.
An example: (See picture below):
Range high: 1.9938

Range low: 1.9919

Place an order to buy at 1.9941 with a stop loss order at 1.9917. Take profit at 1.9991.
Place an order to sell at 1.9916 with a stop loss order at 1.9940. Take profit at 1.9866.
That's it!

GBP/USD CPI news straddle strategy

Things to consider when interested in "Straddle the News" forex strategy:
1. False breakouts or whipsaws can occur, especially when the release came close or
in line with market expectations and traders fade the breakout (i.e place trades in
the direction opposite to the initial price movement). Worst case scenario, both
stop losses get hit. Although the strategy relies on "true" breakouts it can still
work during a false breakout if you take the profits quickly and don't get greedy
plus you put very tight stops below or above the range to minimize the risk.
2. During key news releases, spreads can widen up and both buy and sell orders can
be triggered at the same time. You will end up losing.
3. Slippage - During major fundamental announcements, both stop loss and limit
orders may not be guaranteed to be filled at your price. 'Slippage' is the cost
involved when currency traders enter the market at a price worse than the level

they wanted to get into.

For example, a trader wants to sell GBP/USD at 1.9000 but the order is executed at
1.8999 rate. That 1 pip difference is slippage cost.
Hedging the News
What is hedging? Hedging enables a currency trader to simultaneously hold Buy and Sell
positions in the same currency pair at the same time in one trading account.
Hedging News Strategy:
1. To hedge, go both long and short at market price 30 min before the news release.
2. Add a protective stop loss order to both long and short positions 30 seconds
before the news release.
3. Add a limit order to both long and short positions 30 seconds before the news
release.
Now wait...
Possible scenarios after the news release:
Whipsaw or false breakout - both stop losses can get hit.
No movement - nothing will happen to your open positions.
Price breaks out - one of your stop loss orders will get hit and hopefully, you will reach
your target level on the remaining open position.

Economic Indicators Explained

Balance of Payments:
The balance of payments is separated into two main accounts: the current account and the
capital account. It's a complete summary of a nations economic transactions and the rest
of the world including merchandise, services, financial assets and tourism.
Beige Book Fed Survey:
The Beige Book, is published eight times a year by the Federal Reserve Bank. It
highlights the activity information by District and sector. The survey normally covers a
period of about 4-weeks in duration.
Business Inventories and Sales:
Inventories are an important component of the GDP report. Business inventories and
sales figures consist of data from other reports such as durable goods orders, factory

orders, retail sales, and sales data.

Construction Spending:
Spending Measures the value of construction during the course of a particular month.
Consumer Price Spending (CPI):
CPI measures the change in prices at the consumer level for a fixed basket of goods and
services paid for by a typical consumer. Items included in the CPI reflect all goods and
services that people buy for day-to-day living.
Current Account:
The current account is the sum of net income from trade in goods and services, net factor
income, and net unilateral transfers from abroad. It's a statement of the country's trade
with other nations over a period of time.
Durable Goods Orders:
Durable Goods include large ticket items such as capital goods, transportation and
defence orders. They are extremely important because they anticipate changes in
production and thus, signal turns in the economic cycle.
Employment Report:
In the US, the employment report is regarded as the most important among all economic
indicators. The Employment Report contains 3 components: Payroll Employment:
Measures the change in number of workers in a given month.
Unemployment Rate:
The percentage of the civilian labor force actively looking for employment but unable to
find jobs. Average Hourly Earnings Growth: The growth rate between one months
average hourly rate and another.
Factory Orders:
The factory orders report contains data on orders and shipments of non durable goods,
manufacturing inventories, and the inventory/sales ratio.
FOMC Decision:
The FOMC holds eight regularly scheduled meetings per year. If the FOMC wants to
increase economic growth, it will reduce the target fed funds rate. Conversely, if it wants

to slow down the economy, it will increase the target rate with a rate hike.
Gross Domestic Product (GDP):
There are four major components of the GDP are: consumption, investment, government
purchases, and net exports. GDP measures the market value of goods and services
produced in a country.
Housing Starts/Building Permits Starts:
Are divided into single-family and multi-family categories. In both cases, a housing unit
is considered started when excavation actually begins.
IFO:
Germanys leading survey of business conditions. The index surveys over 7,000
enterprises on their assessment of the current business situation and their resulting plans
for the short-term.
Industrial Production and Capacity Utilization:
Industrial production measures the monthly percentage change in volume of output of the
nations factories, mines, and utilities. Capacity utilization measures the extent to which
the capital stock is employed in production.
National Association of Purchasing Managers (NAPM):
This is leading survey on US manufacturing activity, arranged by the National
Association of Purchasing Management (NAPM).
New Home Sales:
Monthly data new home sales data contains information on home prices, and number of
houses for sale.
Non Farm Payroll (NFP):
NFP represents all business employees excluding general government employees, private
household employees, and employees of nonprofit organizations, accounting for about
80% of the workers who contribute to GDP. NFP is released every first friday of the
month and can cause big gaps on the forex market.
Personal Income:
Personal Spending, also known as PCE, represents the change in the market value of all

goods and services purchased by individuals. It is the GDP's largest component.

Producer Price Index (PPI):
PPI measures the monthly change in wholesale prices and is broken down by commodity,
industry and stage of production.
Purchasing Managers' Index (PMI):
PMI is widely used by industrialized economies to assess business confidence. Germany,
Japan and the UK use PMI surveys for both manufacturing and services industries.
Retail Sales:
Retail sales is the first real indication of the strength of consumer expenditure .Measures
the percentage monthly change in total receipts of retail stores, and includes both durable
and non-durable goods.
TICS:
The Treasury International Capital (TIC) Report measures foreign demand for US debt
and assets. Strong demand tends to strengthen the dollar as foreigners convert their
money in order to purchase US securities.
Tankan Survey:
Japans chief business survey, compiled quarterly by the Bank of Japan. The survey
consists of two major parts; the "judgment survey," asking businesses about their
situation in the previous, current and following quarters on macro-economic variables,
business conditions, inventory levels, capacity utilization levels and employment level.
The other main part is related to "current management issues" confronting companies.
Trade Balance:
The difference between the monetary value of exports and imports in an economy over a
certain period of time. A positive balance of trade is known as a trade surplus and consists
of exporting more than your imports; a negative balance of trade is known as a trade
deficit or, informally, a trade gap. The Trade Balance also has a sizable impact on GDP.

US Economic Numbers to Keep an EYE On

The rankings for US economic data as seen in below table are based on an analysis of 20minute and daily ranges. As seen in below table for example, the Non-farm Payroll
release days can cause a big shake up in the forex market. They have the potential to

move the EUR/USD (on average) 123 pips in 20 min and 193 pips in a day on average.
Biggest FX market shakers table
Year 2004 - 20
min after news

Avg.
Range
(pips)

Non-Farm
Payrolls

123

FOMC Decision

74

Trade Balance

64

Inflation - CPI

44

Retail Sales

43

GDP

43

Current Account

43

Durable Goods

39

TICS

33

Year 2004 - Total Avg.

Daily Range
Range
(pips)
Non-Farm
Payrolls

193

FOMC Decision

140

TICS

132

Trade Balance

129

Current Account

127

Durable Goods

126

Retail Sales

125

Inflation - CPI

123

GDP

110

1. Non Farm Payroll (NFP):

NFP represents all business employees excluding general government employees, private
household employees, and employees of nonprofit organizations, accounting for about
80% of the workers who contribute to GDP. NFP is released every first friday of the
month and can cause big gaps on the forex market.

NFP Release Schedule: First Friday of the month at 8:30am EST

2. FOMC Decision
The FOMC holds eight regularly scheduled meetings per year. If the FOMC wants to
increase economic growth, it will reduce the target fed funds rate. Conversely, if it wants
to slow down the economy, it will increase the target rate with a rate hike.
3. Trade Balance:
The difference between the monetary value of exports and imports in an economy over a
certain period of time. A positive balance of trade is known as a trade surplus and consists
of exporting more than your imports; a negative balance of trade is known as a trade
deficit or, informally, a trade gap. The Trade Balance also has a sizable impact on GDP.
4. Consumer Price Spending (CPI):
CPI measures the change in prices at the consumer level for a fixed basket of goods and
services paid for by a typical consumer. Items included in the CPI reflect all goods and
services that people buy for day-to-day living.

5. Retail Sales:
Retail sales is the first real indication of the strength of
consumer expenditure .Measures the percentage monthly
change in total receipts of retail stores, and includes both
durable and non-durable goods.
6. Gross Domestic Product (GDP):
There are four major components of the GDP are:
consumption, investment, government purchases, and net
exports. GDP measures the market value of goods and
services produced in a country.
7. Current Account
The current account is the sum of net income from trade in
goods and services, net factor income, and net unilateral
transfers from abroad. It's a statement of the country's trade
with other nations over a period of time.
8. Durable Goods Orders:
Durable Goods include large ticket items such as capital goods, transportation and
defence orders. They are extremely important because they anticipate changes in
production and thus, signal turns in the economic cycle.
9. TICS
The Treasury International Capital (TIC) Report measures foreign demand for US debt
and assets. Strong demand tends to strengthen the dollar as foreigners convert their
money in order to purchase US securities.
Artilce by Lilly De Clerck and aboutcurrency.com
Information, charts or examples contained in this lesson are for illustration and educational purposes only.
It should not be considered as advice or a recommendation to buy or sell any security or financial
instrument. We do not and cannot offer investment advice. For further information please read our
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