Forex System based on trading news should be selected very carefully. Primary reason being that trading during any fundamental announcement or news is one of the most explosive time during a trading session. The market can move 100s of pips in matter of seconds. Thats why the risk involved are more than trading using technical analysis.
Still, because of profit potential, trading during forex news announcement is one of the most tempting proposition for forex traders. When you are selecting any forex news based system, please make sure that it covers below mentioned 3 risks –
1. What is the strategy to protect forex account when market moves against your trade direction – The beauty of forex news is that it cannot be predicted which direction it will move. Naturally, it is very necessary that a strong strategy should be in place to protect the account incase market moves in the opposite of anticipated direction. If such strategy is not in place, your complete account is under big risk.
2. How much will be the profit target – The way forex market reacts to fundamental news is based on a factor of “Expectation”. For example, Lets imagine that the trader community believes that as per next Non Farm Payrolls the unemployment will be 8% as against 6% during last months announcement.
But when NFP comes out and unemployment is said to be at 7.9%, market will treat this as positive for US economy and Dollar will become stronger and market will move in USD direction. How much it will move will be based on much better the results are from expectations. The forex news trading system should definitely cover what should be a realistic profit target based on the news results.
3. Is your forex broker cooperative – No forex news system will work if the broker cannot allow you to trade using live prices during fundamental announcements. During some volatile announcements, the currency pair prices are delayed by the some of the forex brokers. Thats because they discourage trading news. If thats the case, then either you drop idea trading forex news or you must choose a new broker.