The importance of news

The importance of news

· Change the flows are highly correlated with news.

· News that is unexpected tends to have a major impact on the market.

The most important aspect of interpreting news and its impact on foreign exchange markets is the determination of market expectations for that news. In the financial world, this is known as "market discount mechanism. The correlation between currency markets and news is pretty clear. Expected news has little impact on exchange rates when unexpected news, especially when it comes to potential changes in monetary policy can have enormous impact. Short-term traders need to closely monitor financial publications such as Financial Times and The Wall Street Journal, because they are excellent gauges of current feelings toward potential news events. Being aware of events and expectations allows traders to be fully prepared for, and profit from, reducing the potential market moving events.

Event-driven trading

Ÿ The is difficult to determine the effect of news on currency movements.

· Traders should avoid bias and analyst Be especially careful when trading during economic releases

Event-driven trading is fundamentally based methodology that tries to exploit the economic instability associated with the media and political announcements. Often times it is quite difficult to determine the effect of news on currency movements, and therefore traders should avoid biased analysis and a defensive position during these events. Generally, as the main news becomes available, the market as a whole will assimilate the news and move the exchange rate to more appropriate levels as market perceptions adjust to it. The event driven trader seeks to profit from the resulting change in price. The timing of the event driven trades is obviously a key factor for success as positions entered early or late can have significant adverse impacts on the P & L. For this reason, profitable event-driven traders usually include some kind of technical analysis that helps to check reliability of the basic catalyst.

A common mistake

· News releases can lead to sharp volatility in FX, but this instability can start much earlier than the actual announcement.

· Much of this instability occurs in the days before the announcement.

Economic issues can lead to sharp increases in the volatility of currency markets. This increase in volatility may begin days in advance of the announcement and end days later. The most common mistake made by most novice traders to enter positions after a new listing hits the wires, in an attempt to profit from the perceived good or bad news. What they fail to realize that if the message meets economic expectations, there probably will be no reaction to the news because it is already "priced in" the market. The reaction of the market is based on the expectations of the market, not whether the news is essentially good or bad.

Buy the Rumor, Sell News

Instead · trade advertisement itself, some participants want to trade on rumors abound before its release.

Bank dealers and institutional traders often adhere to the old Wall Street adage of "buy the rumor, sell the news." Rumors of a positive report will usually begin to circulate among trading desks and hedge funds days before the expected date of issue. Institutions will then uses this information to position the long side. When the news comes out as expected, they then sell their positions to a frantic public, profiting from the preparation of the advertisement as opposed to guessing the reaction to it.




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