Mexican Trading Sessions: Timing Your Forex Strategies – One of the great advantages of currency trading is that the forex market is open 24 hours a day, five days a week (from Sunday, 5 p.m. until Friday, 4 p.m. ET). Since markets move because of news, economic data is often the most important catalyst for short-term movements. This is particularly true in the currency market, which responds not only to the economic numbers of the United States, but also to news from around the world. Here, we look at which economic numbers are released when, which data is most relevant for forex traders, and how traders can act on this market information.
With at least eight major currencies available for trading at most currency brokers, there is always a piece of economic data scheduled for release that forex traders can use to make informed trades. In fact, seven or more pieces of data are released almost every day of the week (except holidays) from the top eight most followed countries. So for those who choose to exchange news, there are many opportunities. The eight major currencies are familiar to most traders:
Mexican Trading Sessions: Timing Your Forex Strategies
Currencies that can be easily exchanged around the globe. This means that you can manually select the currencies and economic versions to which you pay particular attention. But, as a general rule, since the US dollar is on the “other side” of 90% of all currency exchanges, US economic freedoms tend to have the most pronounced impact on the forex markets.
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Trading news is harder than it seems. Not only is the reported consensus figure important, but also the whisper numbers (unofficial and unpublished forecasts) and any revisions to previous reports. Also, some versions are more important than others; this can be measured in terms of the meaning of the country that releases the data and the importance of the release in relation to other pieces of data that are released.
Figure 1 lists the approximate times (Eastern Time) of the most important economic releases for each of the following countries. These are also the times that players in the forex market pay extra attention to the markets, especially when trading based on news.
When trading news, you first know what releases are actually expected that week. Second, knowing what data is important is also key. In general, the most important information relates to changes in interest rates, inflation and economic growth, such as retail sales, manufacturing and industrial production:
Depending on the current state of the economy, the relative importance of these versions may change. For example, unemployment may be more important this month than trade or interest rate decisions. Therefore, it is important to keep on what the market is focused on at the moment.
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According to a study by Martin D. D. Evans and Richard K. Lyons published in the Journal of International Money and Finance (2004), the market could still be absorbing or reacting to the news hours, if not days, after the numbers are free yourself.
The study found that the effect on returns is generally found in the first or second day, but the impact seems to persist until the fourth day. The impact on the flow of purchase and sale orders, on the other hand, is still very pronounced on the third day and is observable on the fourth day.
The most common way to trade news is to look for a period of consolidation or uncertainty in front of a large number and trade the farm on the back of the news. This can be done on a short-term basis (intraday) or longer. several days. Let’s look at the chart in Figure 2 as an example. After a weak number in September, the euro held its breath ahead of the October number, which was to be released to the public in November.
In the 17 hours before the release, EUR/USD was confined in a tight 30-pip trading range. (A pip is the smallest measure of change in a currency pair in the forex market, and since most major currency pairs are priced to four decimal places, the smallest change is that of the last decimal point ). a great opportunity to put in a discovery trade, especially since the probability of a strong movement at this time was extremely high.
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The chart above illustrates – with two horizontal lines forming a trading channel – the indecision and uncertainty leading up to October’s nonfarm payrolls numbers, which were released in early November. Note the increase in volatility that occurred once the numbers were released.
We’ve mentioned before that business news is harder than you might think. For what? The primary reason is volatility. You may make the right move, but the market may simply not have the momentum to support the move.
Let’s look at the graph in Figure 3 as an example. This chart shows the activity after the same release as the one shown in Figure 2 (but over a different time frame) to show how difficult business news releases can be. On November 4, 2005, the market had expected a payroll increase of 120,000 jobs, but instead the US economy gained only 56,000 jobs. The disappointment led to a sell-off of about 60 pips in the dollar against the euro in the first 25 minutes after the release.
However, the dollar’s momentum was so strong that the gains were quickly reversed, and an hour later, the EUR/USD had broken its previous low and actually hit a 1.5-year low against the dollar. Opportunities were plentiful for discovery traders, but the bullish momentum in the dollar was so strong that such a bad payroll number failed to put a substantial dent in the currency’s rally. One thing you should keep in mind is that, on the back of a good number, a strong move should also see a strong extension.
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The chart above shows that while the worse than expected non-farm payroll numbers sent the EUR/USD rate upward for a short period of time, the strong momentum of the US dollar was able to take control and push it higher . Keep in mind when the US dollar appreciates against the Euro.
One potential answer to catch a breakout in volatility without having to face the risk of a reversal is to trade exotic options. Exotic options generally have barrier levels and will be profitable or unprofitable depending on which barrier level is breached. The payment is predetermined and the premium or price of the option is based on the payment. The following are the most popular types of exotic options to use for news trading:
A dual one-touch option has two barrier levels. Any one of the levels must be breached before expiry for the option to become profitable and for the buyer to receive the payment. If neither barrier level is breached before expiration, the option expires worthless. A one-touch double option is the perfect option to trade for news releases because it is a purely non-directional game. As long as the barrier level is violated – even if the price reverses course later – the payment is made.
A one-touch option has only one barrier level, which usually makes it slightly less expensive than a double one-touch option. The same criterion applies – the payment is made only if the barrier is breached before the deadline. This is a good option to buy if you really have a view on whether the number will be stronger or weaker than the market consensus forecast.
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Options on currencies are a viable alternative for those who do not care to be caught in the markets by undue volatility before actually seeing the spot price move in their desired direction; There are different types of currency options available through a host of forex brokers.
A no-touch double option is the exact opposite of a one-touch double option. There are two barrier levels, but in this case, neither barrier level can be violated before the expiration, otherwise the payment of the option is not made. This option is great for news traders who think the economic release will be
The currency market is particularly prone to short-term movements brought about by the release of economic news from the United States and the rest of the world. If you want to exchange the news successfully in the forex market, there are several important considerations: knowing when the reports are expected, understanding which releases are more important given the current economic conditions and, of course, knowing how to trade based on these data of the market. . Do your research and stay on top of economic news and you too can reap the rewards.
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