I have noticed a couple of times that when the news related to a certain currency have been released, indicating a bullish signal,for example, traders would go short at the release of the news.
Say the EUR has reported a bullish signal but then traders go short on the EURUSD.
I gave up trying to trade the news, factor in news events or even predict how the markets would react to news long, long ago. If the US unemployment rate goes up that is, obviously, bad news. One would expect markets to react negatively. Sometime they do, sometimes they don’t. If the same unemployment numbers drop, one would expect a positive reaction. Sometimes you get it, sometimes you don’t, whether it is stocks or forex.
The big players already know which way the market is going simply because they are the ones that essentially drive the prices there in the first place. News events are a very effective way for them to hide their movements while they establish very large positions in all the turmoil and chaos that ensues in the high trade volume for an hour or two immediately after the news release.
That is why you will very often see prices shoot in one direction and then methodically make their way back to where they started as the market marches on. Idiot news traders (I used to be one) are going one way while the financials are accumulating their positions on the opposite side of the trade.
Most traders choose to stay out of the markets during news releases for that very reason – they are too unpredictable, no matter what the release says. I now choose to simply ignore them and don’t even glance at the news calendar anymore.
Ever notice that analysts on TV can ALWAYS explain why the markets reacted a certain way AFTER the fact? It is because they had no clue beforehand and certainly had no clue after the fact. That explains the key phrases they are so fond of using, no matter how the market reacts, “better than expected” and “not as good as expected.”
News trading can look easier than following technical analysis signals, but in fact it’s also more risky since you never know how exactly currencies will react to the particular news release.
And I’m absolutely agree with [B]JohnLeonard[/B], especially concerning TV analysts:18:
Yes News trading can be really risky like Kratos said and it can stop you from being a good forex trader.The price action is so fast and wild at that time that if the direction goes against you…U lose your nerves and take wrong decisions.News trading can be considered as gambling in some cases.
If you are new to trading I wouldnt start with trading on the news. You can may experience slippage on your trades and it does require some skill to master