Saturday, September 22, 2007

Forex - News Trading For Profit

The foreign exchange (FOREX) market is the largest financial market in the world, moving approximately $2.0 trillion per day. That is a sum virtually unimaginable to most of us. Unless you are a mathematician, engineer or government economist, you will probably never even have a legitimate reason for writing a number with as many zeroes. Yet, you may now participate in this vast and dynamic market as a trader, even from the comfort of your personal computer at home. Depending on your trading approach, you may be informally classified as a day trader, swing trader, long-term trend trader, news trader or some combination of these. We will focus on the news trading category to highlight the potential for profiting from the FOREX.

A news trader depends on the expected price movement resulting from the release of certain economic news as a basis for trading currency. News reports have the potential to move the FOREX market in a major way. There is a lot of profit potential in the resulting volatility. A lot of the economic news on which a news trader depends is contained in various reports regularly issued by the government of various countries. The federal government of the United States is the source of many of these reports which are released, more or less, on a consistent and regular basis. Many of these reports, or commentary regarding them, can be accessed from the television, internet or via paid-subscription news services. Speed is often highly emphasized as a primary factor in the way the news is received. Some strategies depend a lot less, if at all, on the speed of receiving the news or on the direction of the market once it is received. There are certain reports that tend to affect the market more than others. One example is the non-farm payroll report.

Within the past ten years, the door has opened to allow individual investors to take advantage of the FOREX market by having their orders executed through a retail broker. Most of these brokers will provide some kind of online platform through which the retail customer will enter their trades. This can be done without the necessity of having to actually speak to the brokers representative. In addition, proprietary software packages are available that automate both news trading and day trading, easily interfacing with some brokers platforms. Most broker-provided platforms are usually open 24 hours per day, as is the FOREX itself, allowing for round-the-clock trading. The market is usually closed from Friday at 4:00 p.m. EST to Sunday at 4:00 p.m. Most of the regularly occurring news events are scheduled during the hours the market is open.

Trading the FOREX, though potentially lucrative, should not be undertaken without first receiving sufficient education through a solid training program. Such programs will cover not only the opportunities in trading, but will also arm the student with knowledge about potential pitfalls and ways to manage the inherent risks of the marketplace. Specific instruction is often given on whether to trade at or near the time for news releases. Within the past five years, more and more trainers and their systems have focused on various approaches for news trading. Previously, news trading was thought to be far too risky, due to the uncertainty and unpredictability of a fast-moving market at such times.

While there are still some purveyors who doubt the possibility of profitable results for trading the news, students of some programs have shown remarkable results by utilizing relatively simple strategies for high probability trades. Some are even able to achieve a twenty percent per monththats right, per monthreturn on their investment, trading the news just a few times per month. This kind of performance should make most fund managers drool. Whether this can be done on a consistent and regular basis is dependent on the training, discipline and strategies of the trader as well as on forces at work in the market.

While there are no guarantees of success in trading the news or utilizing any other approaches to the FOREX, some basic guidelines are in order to help the trader prudently navigate the undercurrents of the market. First and foremost is education. It is imperative that a potential FOREX trader get a good understanding of the various aspects of trading. Training does not have to be overly expensive, even for good programs. One training program offered by Winning Traders Association (WTA) of Downingtown, Pennsylvania costs less than $300, including lifetime support and twice-per-day training sessions. Sometimes, education may be as simple as reading and understanding a well-written book on the topic and followed up by asking questions of experienced traders, who can be found online. Brokers can also provide valuable courses and information. Since they are trying to attract your business, some brokers will offer free or discounted courses when you open up and fund a trading account with them.

Second, choose a broker with a good reputation among traders. Various online forums can be helpful in this regard. For example, does a broker put wide spreads on the currency pairs and does the broker increase the spread during or before a news release? A low spread is preferable to a higher spread, all other things being equal. The spread represents how much the broker gets paid, and, therefore, the more the broker makes, the less the trader can keep from the profits made. Try to determine if the apparent low spread is, perhaps, a trade-off for something else lacking in the brokers program. Take, for example, slippage, which is what happen when the broker cannot fill your order at the requested price, but then fills it at the next available price, sometimes too far outside of your range for profitability on the trade. The negative impact of this experience could be minimized, if the broker allowed the trader to opt out of the trade when the order cannot get filled in the requested price range. Often, there is no such opt-out or automatic order cancellation. In this scenario, having a low spread does not do the trader much good, if the broker cannot get the order filled at a reasonably profitable price level.

Third, do not yield to the temptation of greed by trying to get rich overnight. As in the stock, futures and other financial markets, it still rings true that pigs get fat and hogs get slaughtered. The innate proclivity of mankind for greed has been the downfall of many a trader. Proceed cautiously, patiently and prudently as a means of surviving one trade and being left standing to trade another day. To the extent possible, calculate your risks before entering the trade. No one can make all the pips to be made in the FOREX, so dont attempt it. Furthermore, it is well-known that one should not invest more money in a trade than one can afford to lose.

Fourth, stick with your game plan when trading. Even after learning highly successful strategies, test them in your demo account until you are very comfortable with the strategy. It is important to note that it is not always the most sophisticated strategies that make the most profitable trades. In fact, you will probably find that many of the simpler strategies are the ones which consistently rack up the winners. When you graduate to live trading with real money, continue to apply the high-probability strategies over and over again. While no trader can boast 100% winners all the time, the goal is to be consistently profitable over a period of time. In the end, you want to have more wins than losses with the average dollar amount of the wins exceeding the average dollar amount of the losses.

Finally, while news trading does not have to be an exclusive approach to trading in the FOREX market, it is certainly a powerful plan for helping to build your overall portfolio and should, therefore, be given serious consideration to add to other strategies in your arsenal for achieving financial success.

If you are ready to change your future by stepping into the exciting world of trading FOREX, go to for more information. Sandy Robinson, J.D. is part of the Winning Traders Association, an educational organization founded by John Beiler, President. The organization consists of a network of committed trainers and motivated traders willing to provide support to those interested in trading foreign exchange. Many of the members work from home.
Sandy Robinson, J.D.
Copyright 2007