Using the News Will Make You a Successful Trader

When trading the news, there are three questions that we need to ask ourselves before every trade: Is the news important? Is the surprise large enough? And is the surprise in line with the market’s sentiment?

1. Is the news important?

The first task at hand is to figure out what matters and what doesn’t. The top three pieces of potentially market-moving economic data for any country, which are the employment reports, retail sales, and manufacturing and service sector activity data, also known as the ISM or PMI reports. In addition to these, the Gross Domestic Product (GDP) releases and the inflation reports (consumer and producer prices) are also tradable. What is not tradable are reports like the Beige Book because there is no concrete number for comparison, data is released weekly, and any Japanese or Swiss economic reports are almost always overshadowed by the general sentiment in the market.

If you are having a tough time figuring out if the data is tradable or not, most Forex sites will list the impact that each piece of data may have on the currency. High-impact events are the ones that we want to trade.

2. Is the surprise large enough?

The second question is the trickiest of the three because it is subject to interpretation, but the good thing is that the market will usually do the interpretation for you. As a rule of thumb, if the number is greater or less than the forecast by more than 5 percent, it is considered a big surprise, but sometimes a 2 percent surprise is enough to elicit a big reaction in the currency.

So what should you do? Just wait and see how the market responds to the release. If the currency pair barely budges, then most likely, the surprise is not that significant. If the currency pair immediately shoots higher or falls like a rock, there is a good chance that the market was surprised. The key is to wait five minutes before getting into the trade to make sure that the currency responds the way that it is supposed to. In other words, a positive surprise should drive the currency pair higher and a negative surprise should drive it lower.

3. Is the surprise in line with the market’s sentiment?

The third question is important because sometimes the economic data is something that we would normally expect to elicit a big reaction, but for whatever reasons the rally fizzles quickly or traders simply don’t care.

This typically occurs when something else is overshadowing the data and driving the general sentiment in the Forex market. It could be anything from the risk appetite to U.S. data or concerns about problems in Europe. If the economic data surprise or “fundamentals” is in line with the prevailing sentiment in the market, it is a stronger trade. In other words, if the market wants to buy dollars and retail sales are strong, it normally gives Forex traders an even better reason to send the greenback higher. However, if the market is worried about the outlook of the U.S. economy because the Federal Reserve is warning that there will be more trouble to come, then good data may not do much for the dollar because it would be looked at with skepticism.

Quantifying the prevailing sentiment in the market can be difficult, but moving averages can help because they measure the current trend in the market by averaging a certain number of past prices. If the data is good and the currency pair is trading above the 50-period moving average on a 5-minute chart (or the data causes the currency to break above the moving average), then there is a better chance that sentiment and fundamentals will support the trade. However, if the data is good and the currency pair is trading well below the 50-period moving average, then it suggests that the prevailing sentiment does not support the economic surprise. In this case, we will not take the trade because we want to have as many key variables aligned in our favor as possible.

To summarize, we only want to trade economic data that is important, with surprises that are large enough to trigger a reaction in the currency, and only if the economic data is in line with the general sentiment in the market. With these guidelines in hand, let me show you how fast and furious news trading works.

Next… What I am sharing with you is the end result of my 10+ years of trial and error as a trader. I don’t want you to make the same mistakes that I made. I want you to learn from me and I want you to learn for free through the blog I co-founded to help investors like you achieve their financial freedom.

How To Manage Your Money In Any Market To Make Profit

Many Forex traders are unsuccessful for one reason: they over-trade. If you are not having success trading, you must first determine whether you are over-trading before adjusting your trading strategy.

The 3 questions that follow will help you determine whether you are over-trading.

Are you using too many strategies?

Many unsuccessful traders use between 5-10 different strategies and, of course, they do not make any money. The main reason for that is that, the more strategies you use, the less you can focus on the market itself. I am not saying that you shouldn’t know the market or master your strategy. Those are essential to become consistently profitable. However, this may be an impossible task if you are trying to master 3, 5, or 10 different strategies at the same time.

Are you risking too much on every trade?

Understanding the amount you risk is of more importance than knowing/setting the amount you are going to make. Money management is the most important step of your trading strategy. Many traders go from being unsuccessful to being extremely successful by simply implementing a sound money-management strategy.

What do you do when you are making money?

Greed is your worst enemy. It is human nature, we often get greedy when profits are running high. I’ve been there, done that, but, at the end, ended up losing it all. Greed leads many traders to reckless acting and committing mistakes.

After asking yourself these questions you probably know whether you are over-trading. Over-trading is really as harmful as using a strategy that has a low ROI (return on investment).

Now let’s discuss how you can prevent yourself from over-trading.

Establish a trading plan: Before you enter a trade you should always know where you are going to exit. You should also have a set of rules to gradually take profits, where your stop loss will be if the trade goes against you, and, as you gradually take profits, where your trailing losses will be.

Your trading style should fit your personality: this is very important because your money management strategy should emulate your personality. Every trader has a different tolerance for risk and, while higher risk may lead to high rewards, it may also lead to bigger losses. As a scalper you will probably set small percentages for profit in each trade (0.5% to 2%) and, as a swing trader, a bigger percentage like 3% or 4% is the norm.

Your trading style and personality should be the driving force behind the Forex strategy you implement.

How to Use Crossovers to Make You Profits

Indicator crossovers are the most common and effective strategy to spot developing trends. The more used indicators when applying the crossover method are MACD and moving averages. A good signal provider will help you pinpoint the entry and exit points using this method.

How to find the signals

A perfect example would be using the EMA (Exponential Moving Average) and the MACD. When you have an EMA 6 crossing the EMA 23 that would be an indication of a long term trend crossing a short term trend. Under this setup, you buy when the EMA 6 crosses EMA 23 and sell when the EMA 6 crosses the EMA 23. If using the MACD, the most used value is (12, 26, 9). These two indicators will help you identify new trends early and thus maximize the possibility of profits.

Another indicator that is commonly used is the ADX. When using the ADX, look for crosses at the 17 to 23 level. Either of this crosses most likely indicate that a trend is starting. Before making a trade on the ADX cross, look for the DI+ and DI- lines. The DI+ and DI- lines will indicate which way the trend is moving and you can profit by entering the right side of the trend.

Don’t rely on just one indicator

Many Forex indicators are based on identifying trends. Any of these indicators when used by itself could be wrong. If you combine at least a couple of these indicators and they show that a trend is developing, your chances for profits grow exponentially. If you want to try different combinations, you should also look to combine MACD with the stochastic oscillator.

The bottom line

This strategy is advantageous because it gives you, the trader, a chance to stay put and wait for the best entry point possible. The strategy works well on either an uptrending currency or a downtrending currency and allows you to maximize your profits. Since you should be able to identify when a trend is reversing, this strategy also provides you with your exit or reverse points. You can also turn this strategy into a scan if your charting software allows for it. With the good also comes the bad when using these two indicators together. Because you will be waiting for corroboration of the best time to enter a trade, the actual trade of the currency may occur with a lot less frequency than by relying on other indicators.