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Trading news releases and economic announcements

Many short-term traders base their decisions solely on price charts, regardless of which markets they are trading. It's common for traders to completely ignore fundamental factors  and instead follow trends, analyse support and resistance levels and weigh up the various signals their technical indicators are giving them as they attempt to figure out which way the price may move next.

News and economic announcements such as the US non-farm payrolls, GDP figures, interest rate announcements, inflation data etc can significantly impact the markets, especially when the data announcement is not in line with what the markets had been expecting. Paying attention to these announcements can, therefore, prove vastly beneficial to traders and one can significantly strengthen their trading strategy by adding economic announcements to their purely technical and charting approach.

Here are three reasons why paying attention to economic announcements can help even the most dyed-in-the-wool chart follower and add an extra edge to your trading approach.

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News announcements increase volatility

A lot of traders are happy that their charting strategy is proven and delivering profits. They don’t want to cloud their market view by having their own bias about what the fundamentals might say. In fact, they think that their opinion will be fairly insignificant in the wider scheme of everyone else's buying and selling decisions. But we all know that certain major economic announcements often bring additional volatility in the markets, even if it's for just a short period of time.

Even the neatest chart pattern​ can temporarily be thrown out of sync by a significant announcement, such as the latest unemployment news, or what a country’s central bank thinks it may have to do in the future regarding interest rates.

Paying attention to when these announcements are due can mean you don’t end up placing a carefully planned trade a few minutes before something happens that could instantly trigger your stop loss. It’s often far more sensible to wait for the dust to settle after such news events have taken place, and then see if the reason for the trade is still valid.

Announcements can trigger unexpected market reactions

There is normally a consensus amongst leading economists about what level an economic announcement is likely to come in at (for example the non-farm payrolls​  or GDP or inflation data) and its resulting likely effect on the market. For example, low unemployment suggests a strong economy, so many would expect the stock market to rise. A decision to lower interest rates should make a country’s currency less attractive, causing it to fall against other world currencies.

From time to time, however, economic announcements come in very different from what the broader market was expecting. At other times, market reaction can be opposite to what could generally be expected. For example, if a central bank drops some broad hints that rate cuts may be coming, but the currency still rises, it’s a suggestion that there could be other factors at play here in addition to the prospect of interest rate changes.

This could, in turn, prove to be a strong buy signal. If the currency does not drop on an expectation of a fall in interest rates, then positive sentiment is strong and could possibly indicate that it's a buyers market.

Indicates whether the trend is changing

A lot of traders try and identify trends​  in the hope that they can jump on to the trend and turn a profit. Such trends could range across minutes, days or even months. But all trends reverse at some point, and a change in the underlying economics could be the first sign of this.

As a trader, it would therefore be useful to see if, following the announcement, big levels are being broken on the chart. Is the upper hand in the market switching from buyers to sellers or vice versa? 

Every journey starts with a single step and this is true of trend reversals as well. An economic announcement is seldom enough to swiftly change a medium-term trend, but how the market reacts to surprises can give the first clue that maybe sentiment is starting to shift, thus offering an opportunity to potentially get in at the start of a new trend.

How to read news for trading

In order to read news events, you should familiarise yourself with economic indicators, which are macroeconomic factors that have an impact on all financial markets, whether it be forex​, shares​ or indices​. These can include changes to interest rates, inflation, unemployment levels or retail income for a specific country and these all have a significant effect on the financial markets and overall state of the economy.

Economic announcements often involve these particular factors when advising traders of recent changes within the markets. This can have an impact on market sentiment, especially if the data announcement is not in line with what the traders had been expecting.

Keep up to date with the financial markets. Our news and analysis​ section is updated daily with articles on the forex, share, commodity​ and index markets, written by our market analysts.


What is an example of an economic event?

Examples of economic events, which are also known as economic announcements, include the release of Gross Domestic Product (GDP) figures, interest-rate announcements, the release of inflation data, the release of US non-farm payroll data and the release of retail-income figures. Economic events can significantly impact financial markets.

What are the 5 indicators of the economy?

The 5 indicators of the economy are generally considered to be Gross Domestic Product (GDP), inflation, the unemployment rate, interest rates and retail income. Investors use these indicators to form a view about the overall strength of the economy and to predict movements in financial markets

What is the best economic calendar for forex?

The best economic calendar for forex depends on your needs. Our interactive economic calendar powered by Heckyl, details thousands of upcoming global macroeconomic events, with a variety of layout options which can help you understand how each event potentially impacts forex, index, equity and commodity markets.

How do you trade an economic news release?

Before you trade an economic news release, it’s important to familiarise yourself with the main economic indicators. Economic news releases can cause significant movements in the market, so it’s often sensible to wait for the dust to settle after such news events have taken place, and then see if the reason for your trade is still valid.

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