There are two ways to trade news.

There is no single news trading strategy.

As traders assess the outcome against market expectations, the price tends to rise in one way or have zero reaction to the news.

With this knowledge, there are two basic ways used to trade news:

• Having a bias in one direction

• Having an asymmetrical bias

Bias in one direction

When you have a directional bias, you expect the market to move in one direction after the news is disclosed.

When looking for a trade opportunity in a specific direction, it's helpful to understand what aspects of news reports lead the market to move.



Actual Number vs. Consensus

Analysts will come up with some form of projection on what figures will be revealed several days or even weeks before a news story is released.

This number will differ among analysts, as we discussed in a prior lesson, but there will be a common number that a mass of them agree on in general.

This figure is referred to as a consensus.

The number that is given in a news report is called the actual number.

“Buy the rumor, sell the news,” the saying goes.

This is a prevalent word in the FX market since it seems that when a news report is produced, the movement does not always correspond to what the report suggests.

Let's imagine the unemployment rate in the United States is predicted to rise. Consider that the unemployment rate was 8.8% last month, and the consensus for this month's estimate is 9.0%.

With a consensus of 9.0 percent, all of the major market participants expect a worse US economy and, as a result, a weaker dollar.

Due to the high level of hope, significant market players are unlikely to wait until the report is issued before taking a position.

Before the real number is announced, they will begin selling their dollars for foreign currencies.

Let's imagine the actual unemployment number is shown, and it comes in at 9.0 percent, as projected.

As a retail trader, you might think to yourself, “OK, this is bad news for the United States.” It's time to sell dollar futures!

When you go to your trading platform to begin selling the dollar, though, you notice that the markets aren't moving in the manner you expected.

It's truly increasing! What the hell is going on here？ Why？

This is because the major players may have already modified their positions prior to the news report's release and may now be profiting after the news has been released.

Let's go over this case again, but this time imagine that the actual unemployment rate is 8.0 percent.

Because of the consensus, market participants expected the unemployment rate to rise to 9.0 percent, but the data show that the rate actually decreased, indicating dollar strength.

Because the big market players didn't expect this to happen, you'd see a massive dollar rise across the board on your charts.

They're all trying to modify their positions as quickly as possible now that the report has been issued and it says something completely different than what they expected.

This would also occur if the actual report showed a 10.0 percent unemployment rate.

The only difference would be that instead of surging, the dollar would plummet!

Because the market consensus was 9.0 percent but the actual report showed a higher 10.0 percent unemployment rate, the big players would sell more dollars because the United States now seems to be much weaker than when the forecasts were originally given.

It's critical to maintain track of market consensus and real figures so you can better predict which news releases will impact the market and in which direction.

Non-Directional Bias

The non-directional bias method is a more popular news trading strategy.

It makes no difference which way the FX market goes. We just want to be present when it happens!

This means that you have a plan in place to enter a trade once the market moves in either direction.

The term “non-directional bias” refers to the lack of prejudice in predicting whether the price will rise or fall.