Forex Factory found on the forexfactory.com domain is one of the best known resources on the web for trading the news. This is a guide to news trading.
- How to use the Forex Factory economic calendar
- How to trade with the forexfactory.com economic calendar
- News trading using Forex Factory
- How to trade the news
- News tab on Forex Factory
- NEWS TRADING STRATEGY using Forex Factory
How to use the Forex Factory economic calendar
Forex traders, especially day traders use Forex Factory to keep up to date with the news that moves the forex market. Fortunately, Forex Factory collect all the upcoming economic data and forex news events and put them into an economic calendar. The Forex Factory calendar is especially important in an example like the below when there is a FOMC meeting or any other big economic news announcements like non-farm payrolls (NFP).
The calendar looks as follows:
There are 10 columns in the forex news calendar. Here we highlight the important ones
Currency: The currency code for the forex pairs most likely to be affected
Impact: How likely this data item is to cause a big move in the forex market.
Detail: will give you some more information about how this data item works
Actual: The data when it is released is shown here
Forecast: What the consensus forecast is from economics polled by Reuters or Bloomberg
Previous: What the result was in the previous release, normally the previous month
Graph: This shows you how the data has moved over time and is useful to see the trend
How to trade with the Forex Factory economic calendar
The next step is trading the forex market using the economic calendar. To do this we need to understand how economic data can impact the forex market. Using the news to trade forex is called fundamental analysis.
To learn more, try reading our blog What is fundamental analysis?
However, a deep understanding of what each data point means or an ability to do economic forecasting is unnecessary for forex trading success by trading the news. This type of trading strategy is known as ‘forex news trading’.
News trading using Forex Factory
News trading involves buy or selling a forex pair the moment news comes out. The economic calendar on Forex Factory is a useful tool for seeing when the news arrives.
Bearing in mind the Forex Factory calendar is free to use so there can sometimes be a lag. A Bloomberg Terminal would almost certainly deliver the news quicker, but it costs thousands of dollars per month, something most retail traders cannot afford. If there is a lag, use an alternative news source as a backup option or if the currency price has already moved, then skip the trade.
How to trade the news
Forex traders compare the actual data result with the forecast as well as the previous reading. All else being equal the economic news should affect the currency as follows….
- If the actual data beats (is better than) the forecast then the related currency will move up
- If the actual data misses (is worse than) the forecast then the related currency will move down
Let’s take an example from the previous economic calendar:
Here, Canada (CAD) CPI has seen a shock decline from the previous month as well as missed the forecast. I.e. the 0.5% Actual is lower than the Forecast of 0.7% and the Previous of 0.6%.
Forex Factory ranked this as a high impact news event. The result of this data should be to send CAD lower.
To trade the Canadian dollar we trade the major forex pair USD/CAD.
So if the CAD is expected to weaken, we buy USD and sell CAD. i.e. we buy USD/CAD.
News tab on Forex Factory
Of course, forex trading is not as simple as the above example and extra precautions should be taken. For example, Forex Factory also has one of the most popular places to find economic news and financial market news on the internet.
Before trading the news, the forex trader might do well to read market analysis about the Canada CPI data release before it comes out. this can be found on the ‘News’ tab on Forex Factory.
In this example, ING Bank produced an article previewing the economic data release. Other features can also be useful supplementary information such as the Forex Factory sentiment indicator.
News trading strategy using Forex Factory
Certain risk management parameters should also be decided before the example trade in USD/CAD. This can be done with a price chart like those available on the FlowBank trading platform. And of course, this is not exclusive to one forex pair. GBP/USD would be affected by GBP announcements and EUR/USD affected by EUR announcements etc - and all will be affected by USD announcements such as US GDP data.
USD/CAD price chart (1-minute timeframe)
Here the trader can use some basic technical analysis of support and resistance to pre-determine entry and exit point for the trade before the news is released.
Required information for the trade:
- The News is released at 14:30
- News article on Forex Factory suggests a miss is possible so prepare buy (long) entry
- Trade entry will be a market order based on the 1-minute candlestick at 14:30
Trade Entry & Exit levels:
- The stop loss could be set underneath the two recent lows on the candle chart
- The take profit order can be at the recent high
- Wait for news to be released
- If the data misses as expected, place the market order
- If the data comes in line or beats, no trade
How to start news trading with forex
Trading the news is a basic trading strategy that is accessible to beginner traders as well as experienced traders but time and practise is needed to get it right. A demo trading account provides the perfect venue to practise such a trading strategy before trading live.