Hello fellow forex traders! Event-driven trading can be a powerful strategy in the forex market. Have you tried event-driven trading, and if so, what types of events do you primarily focus on?
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The major events causing movement in the forex market are US Non-Farm Payrolls, bank interest rate announcements, followed by inflation rate statements, plus possibly unemployment statistics, interest rate committee minutes and market or consumer sentiment surveys (such as University of Michigan etc.). Plus geo-political events such as military conflicts etc.
But more often than not the market anticipates these data and price is usually already moving in the direction in which the events indicate. You have to admit, the international banks have some very very clever people working for them.
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Event-driven trading is a strategy that focuses on taking advantage of specific events or news releases that can have a significant impact on the forex market. Traders employing this strategy aim to capitalize on price movements that occur as a result of these events. Some of the primary types of events that event-driven traders focus on include:
- Economic Indicators: Economic indicators, such as interest rate decisions, GDP reports, employment data, inflation figures, and consumer confidence reports, can greatly impact currency prices. Traders closely monitor these releases and attempt to predict market reactions based on the data.
- Central Bank Announcements: Central banks play a crucial role in shaping monetary policy, and their announcements regarding interest rates, quantitative easing programs, or other policy changes can lead to significant market movements.
- Geopolitical Events: Major geopolitical events, such as elections, political unrest, trade disputes, or natural disasters, can cause volatility in the forex market. Traders analyze the potential impact of these events on currency pairs and take positions accordingly.
- Corporate Earnings Reports: For traders focusing on specific currencies affected by major corporations, earnings reports can be influential. Positive or negative surprises in earnings can lead to sharp price movements.
- Policy Decisions: Policy decisions made by governments or regulatory bodies, such as changes in fiscal policies, trade policies, or regulations affecting specific industries, can have a substantial impact on currency values.
- Market Sentiment: Event-driven traders also pay attention to market sentiment shifts. They analyze shifts in investor sentiment, risk appetite, or changes in market expectations, which can trigger significant movements in currency pairs.
Itās worth noting that event-driven trading requires careful analysis, fast execution, and risk management. Traders must have access to up-to-date news and data, as well as robust analytical tools, to make informed trading decisions based on events.
And check out this on BabyPips too: Top Forex Gainers & Losers - Currency Market Movers (babypips.com)
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One of the biggest problems concerning news- trading is the fact, that markets very often donāt behave the way " they should do" according to the school books when those events mentioned above are released.
F.e. some weeks ago crude oil inventories were published, all was green ( that means inventories dropped cause of higher demand), and that should make oil rising, but it didnātā¦
Or last week Thursday employment data were released, also all green what means strong labour market, leads to higher odds for higher interest rates, leads to dropping indices, but indices were continuously rising right after the releaseā¦
What I want mention is that someone has to be very carefully when trading the news, cause the overall market sentiment can mitigate the expected impact of certain events.
Why would strong Labour market lead to indices dropping? A strong Labour means strong economy means stocks rise, surely?
Thanks @tommor
so how can a traders effectively position themselves to take advantage of these moves? Any strategies or techniques you recommend?
Thank you for providing such a detailed explanation. such a careful analysis.
I will definitely check out the resource you mentioned.
Just a question have you ever trade on these events?? how was that?
News trading is not something I am good at.
Do you have access to news trading through your broker?
If yes, under what circumstances?
Mine does so in certain circumstances.
Normally, yes, but in the actual situation the inflation problem overshadows the whole situation.
The aim of the FED is to slow down economy, to fight inflation and Mr.Powell reiterated that labour market has to cool down - the measure to do that is raising interest rates, and that hammers down indices.
As I remarked- thatās just for the actual situation, normally itās clear that a strong labour market pushes indices up.
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Normally, yes, but in the actual situation the inflation problem overshadows the whole situation.
The aim of the FED is to slow down economy, to fight inflation and Mr.Powell reiterated that labour market has to cool down - the measure to do that is raising interest rates, and that hammers down indices.
As I remarked- thatās just for the actual situation, normally itās clear that a strong labour market pushes indices up.
I only trade on the D1 time-frame.
If the relevant pairs are moving in a trend as we approach the date of the expected announcement, take a position which follows that trend. The banks are not normally wrong and the Central Banks donāt like to give them shocks so this is normally a high probability tactic.
If there is no trend but you are determined to enter if price moves dramatically, set bracket orders at the close prior to the announcement - one to buy, one to sell. This is a little risky as the orders need to be well apart so that spread volatility or normal volatility do not trigger them unjustifiably when no big move is starting: also so that you donāt end up with both positions running simultaneously. But the idea is to capture the big move if it happens.
In fact, even if trend-following, you still have the option to set a counter-trend entry order prior to news in case this causes a dramatic reversal which instantly crashes the ongoing trend. Though this would be rare, the price moves can be sudden and significant.
There are several problems with your theory though. Weāre coming out the back of a stock market crash, and the crash was worse than the economic situation. Lots of stocks yield significantly higher than interest rates. Inflation is dropping in almost all major countries which suggests the worst is over and things will be getting back to ānormalā.
I also have a view that inflation leads to stock market growth. Not immediately, and not in extreme cases, but once it starts to get under control.
Bracket orders (or single pending orders with an entry price several piips higher or lower than the last price) are a nice thing that works often, but I think itās important to show also the disadvantage:
The big problem is when price moves sharply in one direction, but so fast that your pending order is opened many pips later than your pending open price, and immediately closed in loss cause on the way up your take profit was triggered but under the actual entry priceā¦
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In 20 minutes there is the āmega eventā interest-rate US - as all are sure that the FED will do nothing and as a result EUR wll gain some strengh, the move could later on strenghen the USD cause there is allways talking about that the fight aganst inflation is not over yet, and the inflation target is not reached so far. Especially during the speech of āUncle Jeomeā he could say some sentences concerning future rate hikes, which could push the USD up.
We will see, extreme high volatlity is guaranteed - i am going to open simultaniously a buy and sell position and try to catch spikes in both directions at the beginning -this strategy is not very loved by everyone, but i experienced allready some profit with it.
The interesting thing on the chart is, that after the press conference started at 20:30 Uncle Jerome reiterated that there is still some way to go to reach the inflation target of 2%, and next measures to reach that target are, so to say āin the pipelineā, what means that further rate hikes are planned, but USD became weaker during those statements
that was interesting that was something I didnāt know
and a question why do you trade on D1? you mean just D1 or for this situation justD1?
My trades are all D1.
In the past I have traded special strategies which only make sense intra-day, such as opening range breakouts. But I donāt find generally that the standard well known strategies, which are all D1 translate directly to shorter time-frames. At least, not for me, not yet.
Yes, profitable in the long term
Absolutely, event-driven trading can be quite the thrill! I usually keep an eye on economic events, like interest rate decisions, jobs reports, and GDP releases. They can really shake up the market!
I do know many traders comply with such kind of strategy and they base their analysis strictly on some of the crucial announcement from large entities, or if it comes down to the crypto, then they are subscribers of all crypto-influencers like Musk and others.
I canāt say something about whether such strategy is fully lucrative or not, it depends on what other methods you utilize alongside with checking news and trackign different important events.