High-impact news events in the trading world are both thrilling and scary for traders. Currency pairs tend to take large moves after significant economic news, which can lead to profits or losses depending on what side of the trade you are on. As a trader, it is important to know how to navigate these and avoid losing trades during these periods of increased volatility.
Being prepared, having good risk management, and knowing the right things to do during news releases, you will be able to make money consistently in the markets.
What are High Impact News Releases?
High-impact news releases are releases of economic data that can cause big moves in financial markets. This type of news gives the market new information about the economy, which causes the forex market to shift in response to the new data.
Some examples of high-impact news events include:
- central bank announcements
- inflation data
- nonfarm payrolls
- GDP
- consumer confidence
- retail sales
- other data releases
These market-moving events cause big movements in currency pairs because traders begin to buy and sell aggressively based on the news.
Why are Markets More Volatile During News Events?
When big news is due to be released, many traders will close their positions due to uncertainty or will hold off on entering new positions until after the news is released. After the news has been released, thousands of traders are entering positions at the same time based on what just happened.
This causes prices to swing violently back and forth, increases the spread between the bid and ask price, and makes for choppy market movement. Although these are great conditions for profiting from a trade, they can have adverse effects on your forex trading online as well.
The Importance of an Economic Calendar
The number one thing to do when preparing to trade around significant economic news is to consult an economic calendar before placing any trades.
An economic calendar is used to track what news is due to be released and will also tell you when the news is scheduled to be released. Checking an economic calendar before you place any trades will ensure you are not blindsided by a big news event you were not accounting for.
As a trader on the forex market, planning around economic news is something you should be doing no matter what level you are at. In addition to that, it will help you decide when to hold off on entering trades until the market has settled down after big news has been released.
Common Strategies for Trading News Releases
There are a few common strategies that traders use when trading around high-impact news releases. Here are some of the most common ones,
Trade the Breakout
Some traders will watch for a breakout and then enter a trade once a breakout occurs after big news has been released.
Wait for Confirmation
Many traders prefer to wait for confirmation before entering any trades. Confirmation means waiting for certain conditions to be met, which lets the trader know that there is a higher likelihood of success in a trade. Traders who wait for confirmation usually prefer to enter a trade after some volatility has occurred and it looks like the breakout is valid. Waiting for confirmation is a common practice when waiting to trade news because it limits the amount of risk in the trade while still catching most of the volatility that comes with big news.
Stay Out of the Markets
Sometimes the best option for handling big news is to stay completely out of the markets until the volatility dies down.
Although it can be tempting to get in on a huge trade opportunity, successful traders know that protecting their account is always the most important thing. If the market conditions are too unstable, it is better to just sit and wait for a better opportunity to come along.
Risk Management Becomes Even More Important
As we already mentioned, increased volatility during news events can cause big losses for unprepared traders. Risk management is one of the most important concepts in trading forex online successfully. The best time to think about risk management is before opening a trade.
Practising good risk management in the face of big news will keep you from losing your account.
Here are some risk management practices to keep in mind:
- use a stop loss
- only risk a small percentage of your total account on each trade
- don’t leverage your account too much
- cut your position size during these periods of big volatility
- make sure you know when to get out of a trade before getting into it
Strong risk management fundamentals are essential to surviving big news releases.
Beware of Emotions When Trading Big News Events
During periods of high volatility, emotions can run wild. Traders may feel euphoric when seeing prices move up on their watch or become anxious due to the uncertainty of what just occurred. Certain emotional traps are common during periods of high volatility, which can cause you to make some really stupid mistakes.
Examples of emotional pitfalls that traders fall victim to during these situations include chasing big moves, removing stop-loss orders, overtrading after a winning streak, and revenge trading after a losing streak.
Discipline is the trait that will distinguish successful traders from unsuccessful ones during big news releases. Avoiding emotional decisions and sticking to your trading plan is the best way to ensure you do not make any unwise decisions during these periods of increased volatility.
Practice Before You Trade
Trading big news events can be especially stressful for new traders who are unfamiliar with these types of situations.
Trading big news events with a demo account is a great way to practice navigating markets that are much more volatile than normal before diving into live trading with real money.
It is important to build confidence as a trader as you develop your own system for trading during big news events. Confidence will help you stay calm and make smarter decisions under pressure, which will ultimately lead to success in the markets.
Final Thoughts
The key to profiting from big news is to prepare for it and know what to expect when the news is released. Learn about big news events that are happening and how they can affect currency pairs and the overall market. It is also vital to know how to manage risk and avoid making reckless decisions based on emotions when big news is released. All of these things combined will enable you to make good decisions during these periods of heightened market volatility.