In this article you’ll learn the top two ways for making money from economic news events.
- 1. The first one is trading into risk events.
This is when you buy or sell a currency in the days before the actual release and ride the move that occurs.
- 2. The second one is trading out of risk events.
This is where you wait for the figure to be released and then you buy or sell the currency based on the deviation in the
The biggest factor is something called market sentiment. If you’re trying to trade economic releases without it, you’re going to experience lots of confusion, frustration, and losses.
You’re already probably aware that news moves currencies. You’ve watched it happen time and time again.
But, when it comes to trading news events from a calendar, you end up getting topped out or watch price go in the opposite direction than what you thought it should. This an be very frustrating. But, when you apply two simple tactics, you’ll see way more consistency in your news trading.
Trading Into Risk Events
The first tactic we’ll discuss is trading into risk events. This means that you anticipate a price move as the economic release time gets closer.
For example, if there was an employment figure being released from the United States next week. Such an event could provide us with an opportunity to trade into it.
So, let’s see how all this works. The first key point to know for trading into risk events is what the expected and previous numbers are.
There must be either a positive or a negative deviation from that previous number. For example, if the previous reading was 5%, we need the forecasted number to be higher or lower than that.
Next we need that forecasted number to line up with the current market sentiment. This is very important.
If the previous number was 5% and the forecast expects the next one to print at 7%, this would represent a positive expectation.
However, what if the market is very negative on the currency at that time? Then we wouldn’t view that as an event to trade into.
Despite the expected positive reading, the sentiment of the market at that time will most likely cause traders to simply ignore that data point.
But, if sentiment was positive and then we also have a positive expected figure, it’s likely that the market would buy the currency into that event. This means the currency would most likely rise in price in the days leading up to that news event.
This can provide us with great trading opportunities. Especially when we have the forecast and the sentiment lined up.
Trading Out Of Risk Events
The second tactic that we can use is trading out risk events. This means you wait for the actual figure to be released and then you enter a trade.
In this approach we need to see a very big positive or a negative deviation in the actual number. The key is how the actual number deviates from the expected one.
We would only trade out of an event if the actual number deviates from the expected number and also lines up with the current market sentiment.
Let’s look at an example.
Let’s suppose the current market sentiment is positive on the dollar, and the expected number is negative.
The previous number for the risk event is 5%.
The Expected number is 3%.
So, we know that the expectations are for a negative deviation.
Imagine the actual number prints at 7%.
That would be a very big positive deviation in line with the current positive market sentiment. Any deviations higher or lower in line with sentiment will usually cause price to move and can provide clear and predictable trades.
But, it’s not always that simple. The most critical factor in all of this is knowing the current market sentiment.
The sentiment must match the deviation. If the number print’s a positive deviation, but market sentiment is negative, any reaction is likely to be muted from that data.
This means you should only trade risk events when you know exactly what you are waiting for to happen. Then you can plan how you will react and trade it.
This approach gives you a much clearer and higher chance of making money from these events.
So, the key to trading risk events is not in the news itself, but rather the prevailing sentiment on that currency.
Without that context, the news releases are virtually meaningless.
If you’ve ever tried to trade news against sentiment, you’ll know exactly what confusion and frustration it can cause.
So, make sure to pay attention to the market sentiment when you try to trade
economic news releases.