Trading forex news releases requires a tremendous amount of composure, preparation and a well-defined strategy. Without these qualities, traders can easily get swept up in all the excitement of a fast-moving market to their detriment. This article provides useful strategies on how to trade forex news during a major news release.
Other articles in this series:
Forex News Trading Strategies
There are two common strategies for trading forex at the news release:
- Initial Spike Fade strategy
- News Straddle strategy
Each one provides a robust plan for traders to follow, depending on the market environment observed at the time of the release, and how best to approach that particular market.
Before reading further it is essential that you have a good grasp on the basics of news trading. If you are new to trading or simply require a refresher, take a look at our introduction on how to trade forex news[1].
1. Initial Spike Fade Strategy
This strategy looks to capitalize on an overreaction in the market over the short term by fading the initial move. This strategy suits reversal traders, scalpers and day traders due to fast moving and erratic pricing that often follows a major news release.
Overreactions and subsequent reversals are seen fairly regularly in the forex market[2] as large institutions add to the increased volatility of the initial move. The market as a whole, often spikes as an overreaction and subsequently push price back toward pre-release levels.
Once the market calms down and spreads[3] return to normal, the reversal often gains momentum showing early signs of a potential new trend[4].
The shortfall associated with this strategy is that the initial spike may turn out to be
