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Forex Fundamental Analysis / News Trading

Forex News Trading Tip - How to Trade the FOMC
By Jordan Lindsey - October 4, 2007
The Federal Open Market Committee (FOMC) decision on interest rates is one of the most powerful market movers in the forex market and when the markets move traders trading the news have the opportunity to make money. The FOMC sets the discount rate or federal funds rate and because interest rates are set higher to induce foreign investment and therefore fight inflation during times of prosperity and lower to increase spending during recessions they are one of the main factors influencing the strength of the dollar.
Economic indicators play a huge role in the forex trading especially for traders who approach the market through fundamental analysis and trade the news. The Federal Open Market Committee (FOMC) interest rate decision is one of the most influential indicators for the US dollar and you can be sure after the news is released there is going to be volatility in the markets and volatility is what traders thrive on.
I have heard many ‘traders’ say never to trade the news and especially the FOMC. Although the FOMC interest decision is a news event and can fall under the category of fundamental analysis, I am a technician and I believe that charts always price everything in. However I guarantee the market does not know what exactly the Feds comments and decision will be, therefore it is not priced in yet and this will cause the markets to react when they do find out. This is confirmed by the change in price after the decision and the continuation in the days following.

I have been trading the Fed for eight years now and yes I have been burnt in the past and that is exactly how I have come to learn how to trade it properly. The most common pattern to trade the Fed is the whip-saw. But do not be fearful of it, embrace it. Here is how it happens. First there is a large spike one direction (traders come in and follow that direction) followed by a large spike in the opposite direction (those same traders now sell their first position at a loss and reverse their position. This is when I take a position in the direction of the original move (all the emotional traders are left sick to their stomachs) and I am left holding a very nice position setting myself up to capture a larger than average market move.
If this pattern does not play out exactly as outlined I stand on the sidelines and do not trade at all. Because the markets are moving fast in the period following the FOMC interest rate decision I am watching a very short time frame, mainly the one and five minute charts.

Forex Fundamental Analysis Tutorial
By Alexandros Louizos - April 28, 2007
In this tutorial you will learn how to implement fundamental analysis in your trading style. This is what some people called institutional Forex trading system. You should learn the basic macroeconomic factors that influence global market. This is called fundamental analysis.
There is a great controversy between traders that use only technical analysis and traders that use only fundamental analysis. For me this is only academic. If there is information out there you should carefully watch it. Do not rely only in technicals or fundamentals. Use both. When you have a solid technical pattern that is supported by fundamentals then the chance that you are right is imminent. When technicals and fundamentals show in different directions then you should watch out. Do not be trigger happy with your Forex trading. Wait and see. Forex is not for prophets. You use scientific analysis in order to maximize the chance that you correctly recognize what the market has to give you. Analyze thoroughly, have a solid technical pattern, know the fundamental support of your analysis and you have a nice trading decision. Seize your risk tolerance and you will be a winner.
Every nation has it’s central bank which is responsible for the well being of the economy. Central banks watch some economic factors that affect the economy and adjust their economic policy accordingly. These factors are announced regularly and the exact time of the announcement is known in advance. These factors are the fundamental indicators of the economy. The most important central banks are FED of USA, ECB of European Union, BOJ of Japan and BOE of United Kingdom. There are many fundamental indicators but there are few of them that are called the “market movers”. They are called so because when they are announced they provide to the market the necessary steam to move. That happens because they have a great impact on the economy and to traders’ positions also.
The most important thing you have to know about fundamental analysis is the market expectation of an indicator. Some analysts provide a probable number of the indicator to be announced. This has an impact to the market and traders are positioned accordingly. When the indicator is announced it affects the market only when it is much different than the market expected. That happens because everything available to the public is already taken into account. When the new information is announced then it has impact on the market only if it is different than expected.
Build up your plan. Know in advance what important fundamental indicators are to be announced the following week. Learn the expected number if it is available and try to forecast what will happen if it comes in as a better or worse figure. This is difficult for the beginners but after studying it will be easy.
There are many fundamental indicators. US indicators have the greatest impact on the market. European Union’s indicators have less impact unless they are much different than expected. Watch out for central banks’ head officers speaking out and giving clues about inflation and interest rates. Today these are the two drivers of the economy. Words like vigilant or very vigilant about inflation from central banks’ heads have great impact on the currencies. When inflation is up, central banks try to keep it low by leveraging interest rates. When interest rates are up then the currency is supported. Learn what economic indicators reflect the inflation and the decision of central bank about interest rates and you have an extra tool in your arsenal in order to trade. Always watch what the market already knows because all this information is reflected in the prices of the market. When fresh important information comes out, learn about it and position yourself accordingly.
There is plenty of information about fundamental indicators in the internet. Visit the Bloomberg economic calendar and the Yahoo economic calendar. Use keywords like “Forex fundamentals” or “Forex economic calendars” and you will find what you need. Study the meaning of these indicators and the relationships between them. Most Forex providers have a built in economic calendar with their trading platforms. The time on these economic calendars is frequently GMT. Learn your time zone and the difference between your zone and GMT and you will know the exact time the indicator will be announced. In these economic calendars, market consensus, if available, is already reported. Study carefully the economic indicators. You will eventually have a great guide to help you in your trading.

Trading Forex News Releases - The Quickest Legal Way to Make Money
By Christopher M. Hall - August 12, 2010
You can make so much money in the forex by trading news. I mean, where else could you make 10%, 20%, 50% of your money in just a few minutes? Trading forex news releases can be everything you imagine in trading - fun, exciting, heart-pounding, instant, daring, and profitable - if you know how to do it right. So how do you trade the news profitably? Let’s look at some basic strategies.
1. Don’t trade before or immediately after news releases
You might get lucky, but more than likely you will just lose money. The spreads are too high, the liquidity is too low, and the volatility is too unpredictable.
2. Straddle strategy
Before the news is released, find major support and resistance lines. Place an entry order above the resistance line and an entry order below the support line. Make these orders dependent on one another so that when one of them is filled, the other is automatically cancelled (your broker can tell you how this is done). What you are doing here is using the news as a catalyst to get the market beyond the major support and resistance lines. You are assuming that once those critical levels are broken, the market will continue in that direction and make you money.
3. Reversal strategy
It is not unusual for the market to take off in one direction after a news release only to retrace and move strongly the opposite way. This is because the first initial trading flurry is caused by small traders who just reacted to the news. The big forex players actually read the news release (imagine that!) and form long-term biases based on the content. Then they enter the market with their millions of dollars and move the market in the opposite direction. So be patient. Let the initial outburst run its course and look for signs that the big players are entering and reversing the market. Once you see this, jump in.

Forex Trading - Why Trading Off News Stories Will Guarantee You Will Lose

By Monica Hendrix - July 3, 2007
Many novice traders like to pay attention to the huge amount of online news stories and try and trade off the information contained, however, this is a huge mistake and one that is guaranteed to make you lose. If you don’t believe the above, consider this fact: The ratio of winners and losers today, is the same as it was 50 years ago. This is despite the advances in news and distribution and all the other tools that traders have available to them - the ratio has remained the same.
Why? Because they don’t help you win! Think about it - if traders made money listening and acting on news stories, then they would all be rich and this is not the case. Sure, the stories and arguments sound convincing, but that’s all they are, opinions and stories and the people giving these stories and opinions are not traders. The market is a discounting mechanism and quickly reflects all news instantly - it’s discounted and the market is looking to the future.

Trade the news and You’re Trading The Past.
Also, if you listen to the news you will let your emotions get involved and trade with the herd and this is a bad place to be - most lose! Keep in mind that the market news is most bullish at market tops, remember 1987 and the tech stock bubble? Well, when they crashed the news was out and out bullish.
The best way to trade is to ignore the news and use a technical approach to trading. By doing this, you will see the reality of price as it is and act on it - this will keep your emotions out of your forex trading. Will Rogers once said: “I only believe what I read in the papers”. He was joking of course, but most traders base their forex trading signals on what they have seen in the news and then wonder why they lose.
There is a huge amount of news online, on TV and in the papers, telling you what has happened and for this it’s very good. However for telling you what is going to happen, it is of no use at all. So if you want to win in online forex trading don’t pay attention to the news!