What is the Best News?
In general, most forex traders primarily look at financial news to gauge its effect on monetary policy and interest rates. News that indicates a stronger (fearful) federal reserve will push forex pairs lower in price relative to others, while dovish or neutral news will generally keep a currency within range.
When news breaks about the global economy and the country’s finances, it is common for many investors to focus on how much interest rate increases and decreases are predicted. This is because interest rate changes always affect how much money you have in your portfolio. However, when this type of news breaks, most traders simply do not care since it is not directly affecting them in any way.
While it may seem obvious that news will not affect your portfolio, the truth is that it can. If you are in a buy-and-hold strategy with a large balance, it is highly important to pay special attention to the news. This is because a large change in the outlook from one month to the next will often result in a large jump in your trading portfolio value. However, if you are a hold-and-rebuild trader, then it is not important what happens with the central banks of different countries. Holders of bonds, municipal securities, stocks and money market funds should be unaffected by the news because their portfolio is largely diversified.
Economic news that affects your portfolio can affect how much you should trade based on the news. The reason this matters is because the price of a security can be affected by the news, as well as the value of the underlying assets in the portfolio. If the news is bearish, your portfolio value could decline because the price of a security might go down and you do not have as much equity left in your portfolio. Conversely, if the news is bullish, the price of a security could increase because more buyers are looking to purchase.
When you are looking for news that will affect the price of a security, remember that it is also important to know how the news will affect your overall portfolio. Most traders will trade in pairs that are most closely related to the underlying assets they hold. For example, if the central bank of a country is bullish on their currency and your currency is also going up, your pair will likely go up in the process. This is because you are buying and holding the asset pairs that are closely related to each other.
If you are just beginning to learn how to trade forex and do not yet understand how the market works, you should begin to learn as much as possible about how the news will affect the market before you begin to trade. Reading a variety of books on currency trading is a good idea as well as it will give you the basic knowledge you need to make decisions.
When the news is bearish, you should not trade a currency that is associated with the economic outlook of the country. Bearish economic news will tend to hurt the value of a currency, so traders must not invest in that currency.
For this reason, you should be focusing on the economic outlook of a country, and the only trade that country if economic news that was favorable has passed by. You may not want to lose all your capital before you even begin to trade. However, bearish economic news should be a good indicator that other nations will be able to sustain their economic policies and the price of their currency should not decrease.