Navigating news trading: strategies and considerations

In today’s fast-paced world, where technology enables instantaneous news delivery, traders across various markets, including the foreign exchange (Forex) market, constantly seek to develop diverse trading strategies.

Traders employ various approaches, including technical, fundamental, or a combination of both. Regardless of the execution type, market, or strategy chosen, economic data releases generally significantly impact the market. The specific details and current market conditions are crucial in determining the market’s reaction to these releases.

In this article, we will examine the concept of news trading and the factors traders should consider when trading around economic news events, regardless of their chosen trading strategy.

The economic calendar is filled with numerous economic releases, categorised into high, medium, and low impact types. As a trader, carefully considering which releases you plan to focus on is essential. Attempting to trade all news events may be overwhelming, so it might be a better choice to select specific types of releases that align with your trading style or strategy. For instance, traders may focus on CPI or inflation indicators from various countries or interest rate decisions by central banks, which can cause sudden, significant price movements. In contrast, others may focus on longer-term fundamental releases such as GDP Growth.

Another crucial aspect of news trading is understanding the details of the economic release itself. For example, when analysing inflation data, such as the Consumer Price Index (CPI), traders should examine the breakdown of contributors to the indicator. This breakdown can reveal which sectors of the economy are experiencing higher inflation than others, providing traders with a clearer understanding of the release’s implications. (See below chart)

A trader should also consider the overall trend of the indicator itself, its recent performance, and averages. Is it within its average or significantly deviating from its historical average? Traders can also compare CPI to similar indicators, such as the Personal Consumption Expenditure (PCE), which measures inflation using a different formula. Analysing the contributors to the CPI may help traders estimate PCE before its official release. While we don’t need to be economists, it’s crucial to understand the basics of the indicator’s workings.

Traders must distinguish between economic data releases that significantly impact the market and those that merely represent market noise. Some surveys may be biased along party lines, with some expecting adverse outcomes while others have positive ones. While these surveys often yield close results and provide little actionable insight, they can still influence market expectations. Persistent declining or ascending survey trends can alter traders’ expectations.

We trade currencies in pairs, so if I’m trading inflation data in the US, I should also understand the economic conditions in the country of the other currency that I’m trading. For instance, when trading the EUR/USD, a trader should consider inflation, interest rates, expectations, and labour market conditions in both the US and the Eurozone.

Economic data releases or different types of data can have varying impacts. For instance, some data releases can be surprising and lead to significant movements in exchange rates. In contrast, others can be highly anticipated, and market traders have already positioned themselves based on the forecast and their interpretation of the forecasted numbers. In such cases, we may witness false breakouts or price trends that do not last, potentially resulting in a market reversal or sideways price action as traders await further clarity and additional data releases.

In some cases, a significant economic release can be overshadowed by another market event. In early April 2025, close to “Libration Day” and amid all the tariff announcements, markets anxiously awaited the scheduled CPI release. Markets paid hardly any attention to the CPI, and tariffs mainly influenced the majority of moves in the currency markets.

In many cases, ahead of an economic data release, different patterns may emerge on various chart timeframes, depending on the importance and expected impact of the release. Lets say that markets are waiting for the Federal Open Market Committee (FOMC) to announce a potential change interest rates and traders are split on how the FOMC decision might be, in these cases, we may find price action settled at a critical long term technical level such as, a long term technical pattern border, a monthly or annual pivot point or a historical high or low before the news. Sometimes, it can be a confluence of multiple indicators aligning at the same level, highlighting the indecision in market sentiment. On shorter time frames, we may see price action trading sideways or within a specified range in the lead-up to the news release.

For example, the European Central Bank (ECB) was to announce interest rates on April 17, 2025. Bloomberg’s analyst surveys and multiple other resources forecast an 89% chance of a 25-basis-point interest rate cut.

The above daily chart image for EURUSD shows how the currency pair encountered resistance along the upper border of an ascending channel for six trading days, remaining below the 1.1400 range. However, it remained above its weekly pivot point, near 1.1330 at the time. (Highlighted Rectangle). The breakout above the resistance only occurred on Monday of the following week.

Looking at a shorter timeframe, for example, the above 1-hour chart, we can see that price action began trading in a ranging pattern on April 10, 2025, days ahead of the ECB’s decision. Following the news release that the ECB cut rates by 25 bps, although this can be considered harmful for a currency, the cut was widely expected. The trading range remained intact, showing the currency pair's strength before its breakout (Marked by a circle) above the resistance level on Monday.

Bias is a significant factor in trading financial markets. To succeed, traders must eliminate any bias that may cloud their judgment. It’s common in a society to have a polarised market, especially concerning a political situation. Traders can be influenced by receiving news from a single source, making them vulnerable to its impact without allowing any space for a contrary opinion.

We are all human beings and can easily fall into the bias trap while trading. The bias affects traders in different ways. Traders will exaggerate the impact of tools or indicators supporting their bias and dismiss any evidence pointing to the other side. A careful analysis of self-bias can help traders better understand what is happening in the market.

As we all know, trading involves risks, and the types of risks vary depending on the strategy type. It is essential to be aware of the specific types of risk that can be present during news trading.

For example, suppose a trader attempts to place a trade in a fast-moving market, especially during or immediately after a major economic release, such as one that may fundamentally alter market sentiment. In that case, they are faced with execution risks such as slippage, the inability to execute their entire order, and, in rare cases, the inability to enter the market at all.

Traders can utilise various tools to mitigate risk. For example, OANDA’s order entry upper and lower bound feature, available on multiple platforms, allows traders to control the amount of slippage they are willing to accept. Other tools, such as choosing the correct order type, may partially help to mitigate execution risks.

Determining the trade size ahead of trading is another major factor in controlling risks, and news announcements can generate significant market moves. Utilising higher leverage increases a trader’s market exposure, and although it can magnify profits, it can also magnify losses. A trader should consider their position size, stop-loss levels, and the potential price move resulting from an economic release, ensuring that these factors align with their overall risk management strategy.