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Failing to Trade Forex News? Do This Instead

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Should you pay attention to Forex news or ignore it altogether?

That’s the question we’re going to tackle in today’s post.

And I can all but guarantee that by the time you finish this rather short post, you’ll have an entirely new understanding of how to approach news events.

As a quick disclaimer, this won’t be agreeable to everyone. For those with a fundamental edge to their trading, the methods and concepts I discuss here may not apply.

With that said, if you want to rely solely on price action like I do then this post is for you.

Let’s begin.

Trade Forex News Without Watching It

I’m going to let you in on a secret. Are you ready?

I trade the news every single month.

Yep. Non-farm payroll, CPI, PPI, central bank press conferences and even rate decisions.

You name it, I trade it.

And you know what’s even more surprising?

I do it all without reading or watching Forex news.

Sure, I know when high-impact events are scheduled. This allows me to organize my trading activity in a way that doesn’t put me at risk for adverse reactions.

But I never use the result of an event to form an opinion about the market.

Or do I?

When it comes to trading the news, there are three groups of traders.

The first are those who obsessively watch the result of a non-farm payroll report or rate decision. With this information in hand, they pull the trigger without delay.

The second group includes the traders who front run the news. These traders attempt to outsmart the market by buying or selling ahead of a high-impact event.

The third group, which I’m a part of, uses the resulting price action to formulate an opinion.

We (price action traders) sit on the sideline and wait for the dust to settle. Then once all of the noise is gone, we swoop in on the higher time frames and make our decision.

And it doesn’t have to be a buy or sell. Once the dust settles, we’re often left with a whole lot of nothing, which means we do nothing.

Make no mistake; we’re still trading the news. A 200 pip pin bar that develops at support due to a surprise rate hike is just the manifestation of the event itself.

So if we buy that pin bar, we’re technically buying the result of that surprise rate hike.

See what I mean?

It can seem like a fine line, but the difference in trading performance over an extended period is night and day.

To stand a chance in this business, you want to be in the third group.

Read the Chart, Not the News

reading a price chart

Do you know why I prefer price action over any other trading method?

I prefer it because it tells me the result of any Forex news event. Better still, it paints a collective and objective picture of what just happened.

Instead of trading what I think will happen or should happen, I’m trading what actually happened.

That’s a much more robust approach.

And when you combine price action signals with the daily time frame, it becomes even more powerful. By the time the session closes at 5 pm EST, market participants have had hours to weigh in on whether they think the event was positive or negative.

At the end of the day, the market’s opinion is the only one that matters.

It doesn’t care what you think, and it certainly doesn’t listen to your opinion.

I want to dig deep here because what I just stated is the root of the problem with most new traders.

Individual opinions are what get traders into trouble every time.

Well, that and an ego. Let’s face it, opinions and egos aren’t exactly a scarce commodity in the Forex market.

I get hundreds of emails each week from Forex traders around the world. One of the most common questions I get asked is whether I think a particular news event will be positive or negative.

One of the more popular topics seems to be central bank rate decisions. Traders want to know whether I think a central bank will raise rates or not at their next meeting.

But here’s the thing…

It doesn’t matter what I think or what you think.

The only thing that matters is what the market thinks. That’s it!

This same type of question gets asked about past events as well. For instance, a non-farm payroll report comes out, and the numbers surprise to the upside yet the U.S. dollar weakens.

Inevitably, my inbox begins to fill up with questions like – non-farm payroll was positive so why did the USD tank?

If you’re a price action trader, it doesn’t matter why it tanked. And if you feel a burning desire to answer the question above, perhaps you’re better off studying fundamentals or utilizing a blended approach.

My point is this…

If you love reading price charts and studying various patterns, then forget about trying to figure out how the news will impact the market.

The same goes for past events. Don’t bother trying to figure out why the U.S. dollar fell after a positive NFP report.

Just pay attention to the price action. That’s all you need.

Know when Forex news events are occurring, but don’t try to outsmart the market. Those who do are usually disappointed with the result.

Not to mention it will drive you mad trying to figure out why the market did what it did.

How I Handle Volatile News Events

breaking-news

At this point, you’re probably wondering how I deal with news events, particularly those that produce widespread volatility.

First things first…

Before I take a trade, I always check the event calendar. When I do this I’m looking for news that could influence either of the currencies I’m thinking of trading.

By the way, I use the Forex Factory event calendar. It’s the best one out there in my opinion as I can quickly sort by severity as well as currency. It even converts each event to my timezone, so I don’t need to worry about doing the conversions myself.

If you want to learn how to use the Forex Factory calendar, see this guide.

But with so many events occurring each week, how do I trade while protecting my capital from volatility?

The first thing to know is that I only pay attention to the high and medium impact events. These are the red and orange colored events if you’re using the Forex Factory calendar I mentioned above.

Sorting it this way gets rid of about a third of the Forex news on the calendar. I don’t pay attention to the low-impact stuff because it doesn’t tend to cause much volatility and therefore isn’t worth keeping on the calendar.

Once I’ve sorted this out, it becomes much easier to find room to trade.

My general rule for trading ahead of a high-impact event is that it cannot be less than 48 hours away. This gives the trade room to breathe before volatility picks up.

So if there is an RBA rate decision in the next 24 hours, I won’t consider the Australian dollar. The same goes for the New Zealand dollar and an RBNZ rate decision.

Now, some events keep me from trading any currency at all. A few of those events are:

  • Non-farm payroll (NFP)
  • Fed rate decisions
  • Major referendums (sometimes these occur over weekends)
  • U.S. elections

This is not a complete list, but any one of these events will keep me on the sideline regardless of the currencies I’m considering.

Notice that most of the events above affect the U.S. dollar. And while an event like non-farm payroll will be most influential to a pair like the EURUSD or GBPUSD, it can also trigger volatility in cross currencies.

Even the risk-sensitive Japanese yen is not immune here.

Final Words

If you want to become a profitable price action trader, don’t obsess over the news. All you need to know is when events are happening and their potential impact on the currencies you’re trading.

Everything else is just noise.

Instead of reading Forex news, learn to read the price action on your charts. That way you will get the market’s interpretation of an event rather than just your own. This will help increase your confidence in any setup that materializes as a result of the news.

Never take a trade without first checking the calendar. My preference is the event calendar at Forex Factory. It’s well-organized, customizable and can setup to match your time zone, so no more fiddling with time conversions.

As long as there are no high-impact news events within the next 48 hours, I’m in the clear. Otherwise, I’ll stay on the sideline and wait for things to settle before considering the next opportunity.

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Your Turn: Ask Justin Anything

I’d love for this new weekly Q&A to be successful and provide an invaluable repository of answers to common Forex questions.

To do that, I need your help.

Here’s what you can do to get involved and have your question answered in next week’s post:

  1. Ask questions. Post them in the comments below or Tweet them to me @JustinBennettFX
  2. Help me answer questions. If I missed something or if you have something to add, don’t hesitate to leave a comment below.

Leave a Comment:

33 comments
Hesham says

Hi Justin;

Thanks for your clarification concerning trading the news. How do you manage trades which are still active 48 hours before the high impact news ?

Reply
    Justin Bennett says

    You’re welcome, Hesham. That’s a tricky question as it depends on the situation, but I’ll try to answer it in the coming weeks. Cheers.

    Reply
Al says

Most appropriate article after what has just happened from the FOMC’s 0.25% rate hike.

I always thought the whole point of knowing the news was to figure out if it would ultimately lead to a rate hike, because that is supposed to be the big thing that will be positive for a currency.

Well, we now know for sure that a currency can go either way after a hike:

Back in December, 2016, $USD did what it was supposed to do and went up, but this time, three months later, March 2017, it did the opposite and went down rather dramatically. On both occasions, market participants were expecting the hike during the preceding days, and many probably front ran it with some getting burnt this time around – judging by comments on Forex Factory.

Afterwards, we got all the usual silly excuses explaining why down and not up: hike already priced in; dovish sentiments surrounding release; dot plot and forecasts unchanged, etc., etc. All a lot of feeble excuses to cover the market manipulation that probably occurred. It’s quite odd really that after just over 3 months and two 0.25% rate hikes USD is currently lower against EUR than were it was on December 14, 2016, before the hikes began – nice bit of pricing in that!

Yes, your absolutely right Justin, making our own forecasts from the news is usually just a big and costly waste of time.

Reply
    Justin Bennett says

    Spot on, Al. It was an excellent example of buy the rumor sell the news.

    Those of us on the sideline during the event didn’t care which way the market moved or why because we get our information after the 5 pm EST close. By that time the market’s reaction was clear so deciding how to approach it was pretty straightforward.

    Reply
Arin Collins says

I quite agree with you sir. The recent FOMC event Has corroborated your claim on the potency of price action.

Reply
    Justin Bennett says

    Arin, I have no doubt that move took a lot of traders by surprise and not in a good way, particularly those in the first and second group mentioned in this post.

    Reply
Mo says

Hi Justin here’s my question. I’m never quite sure of when to enter on the retest. Thanks in advance.

Reply
    Justin Bennett says

    Hi Mo, thanks for the question. Would you mind clarifying what strategy you’re employing? Are you trading pin bars, engulfing patterns, etc.?

    The question is difficult to answer without knowing this.

    Reply
kanza says

i have been unable to identify trend what i have to do

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William Beverly says

Hi Justin: If you wait to view the price action that occurs as a result of a calendar event, aren’t you missing some potential profit because the price will move before you place a trade. This is confusing to me.

William Beverly

Reply
    Justin Bennett says

    William, thanks for the question. The idea is to catch the move that plays out over the next few days (possibly weeks) following the event. At least that’s what swing traders like myself look for.

    Also, my first job as a trader is to protect the money in my account. I do that by staying on the sideline during volatile news events. Once things settle down, I can begin looking for opportunities.

    Entering directly in front of high-impact news is nothing more than gambling in my opinion. There are too many unknowns. Look no further than the recent Fed rate hike and the subsequent reaction from the U.S. dollar.

    Reply
Ariyo Philemon says

Too many words, too much information to read ,next time please make it short while message is passed .

Reply
    Justin Bennett says

    Ariyo, thanks for the suggestion but I always make the posts as long as I think they need to be to get the message across. Cheers.

    Reply
      tlali says

      That’s true, the manner in which you put them answers all the questions one has, continue doing the good work you are doing sir.

      Reply
Alex says

Hi Justin. You’re absolutely right and I’m on same page with you – everything we need is price action and all the news are already priced in. We never know where the price go, even when we are sure – last USD rate decision is the example. I didn’t expect the dollar to fail, but from my experience everything can happen and it happens. Very educative article.

Reply
    Justin Bennett says

    Glad to hear you enjoyed it, Alex. A lot of folks got tripped up by the latest Fed decision. It’s always best to focus on the price action and take care in front of such heavy-hitting events than to try to outsmart the market.

    Reply
Allan Walker says

Very interesting post, I like your thinking and urge you to keep them coming. If you have any positions on the future of the UK Pound I would like to hear them.
Thanks

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Ntsako says

What other trading methods are there besides price action

Reply
    Justin Bennett says

    Price action is just a way of describing the way a market moves. So technically there can be more than one method of price action trading just as there are various indicator combinations.

    Reply
Shakoor says

Justin
Great lessons it helps me more confident price action.

Reply
Khulekani says

Thank you Mr Bennett today me & my friends we were debating about this topic,ever since I started using price action I never worry about the news.
Justin you are a true hero man God bless you

Reply
cem says

Your lessons are very special Mr Bennett.trading strategyes harmonic wolf and others…Can you tell me.thanks

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Arhan Arya says

Useful article.
Thank you Justin.🍀💚🍀

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victor says

Thanks for this article

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Christine Grace Oyos says

Justin, for example there is an open trade few days before the scheduled high impact news, would you suggest that I locked in profits and close my trade before the news? also there are weeks that almost daily there is HIN about one currency, what if using price action you can see that there is a good setup but there is a HIN, are you going to trade it or not? thank you Justin

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David says

Good day, this just helped me on how to have a better approach to the market, severally i read and thought news was so essential and I got outsmarted whenever I attemted trading the news and then I furthered my education on trading now I have read alot of technical approach and I came to a conclusion and I solely feel price action is best for me and my kind of trading because I’m a very conservative type of person and akways want to have a Good reason to what i do

HERE COMES MY QUESTION

How best can I trade price action is it with the combination of other technical tool, please I will be willing to learn more and hear from you?
My Aim is to improve my chance of making a successful trade, if theres an ebook or anything i’m dedicated and willing to learn thanks

Reply
Thomas says

Hi Justin! I just want to thank you for answering the biggest question I had about the difference between trading by following the news and trading following price action. It is true that price action trading will come with better profit. Thanks.
My (first) question is: If am trading weekly or monthly time frame swings what must I do if there is high impact news and the trade is on, must I close my trade and open my trade after news, or must I leave my trade to continue since am using high time frame?
My (second) question is: There is another strategy that of cause am not sure whether you know it. Some traders claim to be making a lot of profit out of it. I don’t know on what time frame.But they call it one minute time frame. The strategy works like this, when the candle reaches support or resistance that is then they put their trades and collect some profits. What they do is that they trade the fluctuation of the candle sticks. They call it Whipsaw, random or fluctuation of price. Some time I saw them trading a candle on the longer time frame. When the same candle trying to move up and down, they trade it. According to you is it possible to make profit just like that?

Sorry for being too long.

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    Oracle says

    Indeed you are a genius in the Forex World,,my question is should I focus on daily and weekly time frame or 4hour and daily time frame as a price action trader,, thanks

    Reply
Agung LAFx says

Hey Justin, I am increasing the ability to manage trading behavior, such as patience, discipline, consistency, focus and so on. I need your input.

Reply
ALEX says

Hello. How much does banner advertising on this site cost? I want to place 1 banner forex broker per month.

Reply
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