News trading is an aggressive type of trading but if done properly it can be very profitable. This document shows you a profitable news trading strategy that is based on statistics and probability of winning trades. You can use it in your daily trading.

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19. News Trading Strategy
19.1 What Is News Trading
News can be a recent economic or monetary event, meeting
or decision such as interest rate of central banks,
unemployment rate or economic growth that depends on its
importance has some effects on worldwide currencies. For
example, release of unemployment rate in UK will have an
effect on GBP/USD. Important news may cause a sharp
50-200 pips move in a currency pair. The biggest part of this
move happens in the very early 5-30 minutes after news
release and the correspondent currency becomes very
volatile (jumps up and down very quickly) in this time. Just
because of this high volatility trading news can be
challenging and troublesome.
You can find all the Forex news in Forex calendars. Below you
see some of the best Forex calendar websites.
http://www.forexfactory.com/calendar.php
http://www.investopedia.com/forex/calendar/
http://www.fxstreet.com/fundamental/economic-calendar/
http://www.dukascopy.com/swiss/english/marketwatch/
calendars/eccalendar/
http://www.currencynewstrading.com/calendar/
In calendars we can see three columns: actual, forecast and
previous. Forecast as its name shows, is a forecast about the
figure of the economic factor that is to be released.

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And the actual, is the real figure which is released at the
news time. If the actual figure is better (better is relative, for
example a lower unemployment rate is better but lower
economic growth is worse) than forecast, then the
corresponding currency will goes up and if it is worse than
forecast it will drop.
19.2 How to Do News Trading
Trading news is a quite controversial case. If you search the
web for the related articles you will face with hundreds of
pros and cons about this subject, both of them have their
reasons. Among them, the extremist opponents strictly warn
and prevent you to trade news and the supporters urge you
to do it. However, I have my own approach to this case and
again have recruited math to solve this enigma.
I did a statistical research on Forex charts to figure out the
behavior of the price (major pairs) during the news release.
Below is the summary of my findings:
A. In 50% of the times (whatever the actual and forecast
figures are), the relevant currency pair do not significantly
react to the news (mostly low or medium impact and seldom
high impact news) at all (except for low range hysteric moves
during the first minutes) and the price takes its main course
respecting the dynamics of the price (trends, patterns and
price rejections).

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B. In 25% of the times, the relevant currency pair shows a
very intense reaction to the news (always high impact news
release) according to the actual and forecast figures, again,
in the end obeys the price dynamics. This reaction can cause
big profitable 50-200 pips moves.
C. In 25% of the times, the relevant currency pair shows a
big reaction to the news (always high impact news release)
according to the actual and forecast figures, contradicting
the trends, patterns and price rejections. This reaction can
also cause big moves (ranging 50-200 pips).
D. Average bad spike (I mean against your trade) depends on
the importance of the news and vary on different currency
pairs but in general it can be 15-50 pips.
E. If the news release occurs at a tight major support or
resistance level, the bad spike will rarely go more than 10-15
pips away from higher highs or lower lows.
You may go to this address and check above statements on
real charts:
http://www.forexfactory.com/market.php
According to these statistics and facts, I try to plan a solid
framework to work around news trading.

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But, analyzing AUD/USD for the same news release, we find
that all conditions of a successful news trade are met. A very
tight resistance level and acceptable risk/reward ratio (1:2.2)
qualify AUD/USD for this trade.
Figure 19.3.2 A news trade analysis
Figure 19.3.1 A news trade analysis

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