There are three questions we need to ask ourselves before trading each trade: Is the news important? Is the surprise enough? And does it suddenly coincide with market sentiment?
1. Is the news important?
The first task we have is to identify what is important and what is not. Employment reports, retail sales, and manufacturing and service activities are the three most important economic data available in any country. In addition, gross domestic product (GDP) emissions and inflation reports (consumer and producer prices) are also subject to change. Indistinguishable reports are reports such as the BJP, because there are no comparative figures, information is published weekly, and any Japanese or Swiss economic reports are always covered by the general market.
If you are having a hard time deciding whether or not the information can be reversed, most forex sites list the potential impact of each component of the data on the currency. The biggest influences we want to trade are events.
2. Is the surprise enough?
The second question is the most difficult of the three because it is subject to interpretation, but the good thing is that the market often gives you the interpretation. As a rule, if the number is more or less than the forecast of more than 5 percent, it is considered a big surprise, but sometimes 2% is a big surprise in the currency.
So what should you do? Just wait and see how the market responds to the release. If the currency pair is rarely seen, then it is not so surprising. If the currency pair rises immediately or falls like a rock, the market is likely to be surprised. The important thing is to wait five minutes before entering the business, to make sure the currency responds properly. In other words, a positive trend should raise the currency pair and a negative surprise should lower it.
3. Is it suddenly in line with market sentiment?
The third question is important because sometimes we expect economic data to respond in a big way, but for whatever reason the process is quickly resolved or traders simply do not care.
This is something that usually happens when the information overflows and the general mood swings in the forex market. It could be food insecurity, information about the United States, or concerns about the crisis in Europe. If economic data is surprising or “basic” in line with current market trends, it is a solid business. In other words, if the market wants to buy in dollars, if the retail sales are strong, it will normally give Forex traders a better reason to send the maximum. However, if the market is concerned about the outlook for the US economy, the Federal Reserve warns that there will be more problems, so good information is in doubt and may not do much for the dollar.
It may be difficult to quantify the prevalence in the market, but moving averages can be helpful as they measure current past trends by averaging certain past prices. If the information is good and the currency pair trades above the 50-times moving average on a 5-minute chart (or the data breaks above the moving average), then the emotional and fundamental factors are more likely to support the trade. However, if the data is good and the currency pair is trading well below the 50-times moving average, the current trend does not support economic surprise. In this case, we do not take up the business because we want to have as many key variables in our key as possible.
To sum up, we only want to trade important and economic data in a way that is relevant enough to trigger a reaction in the currency, and only if the economic data agrees with the general sentiment in the market. With these guidelines in mind, let me show you how fast and furious news business works.