TOP 4 tips for news trading
How often do you realize that you simply don’t know what’s going on on the market? Every day new economic reports are getting published and decisions announced but you are not sure what to do with all that information. It’s time to learn how to take all these trading opportunities and start profiting on the news trading.
Fundamental analysis is a huge part of trading. In this article, we will analyze 4 important economic news releases, which can change the trend direction for at least 1-2 days.
1. Interest Rate
Every month Central Banks of the most important economies meet to discuss and set the new interest rates (or leave it unchanged). Their decisions are, no doubt, one of the most influential economic indicators that drew the eye of every investor.
How to trade this report:
- Compare the new rate to the old one. A higher number means an increase in the currency’s value and leads to the bullish trend. On the contrary, the lower rate means that the currency just became cheaper and usually followed by the bearish trend. However, quite often Central Banks leave the rate unchanged and traders are puzzled what to do in such case. The best way to react is to analyze the general condition of the economy since it will be the leading factor in setting either bullish or bearish trend.
- Read the Central Bank statement about the current state of the economy and its forecast. Many financial institutions take it into account.
- Analyze the new Monetary Policy decision.
2. Gross Domestic Product (GDP)
Gross domestic product is one of the most efficient ways to measure a country's economy. It indicates the total value of everything produced by the citizens and companies located in the country. It’s also probably the most important economic indicator.
How to trade this report:
- Check the new GDP with the market expectations:
- when it becomes lower than the expected number, currency value starts to fall down
- but when the new GDP performs better than expected, currency value rises up
3. Consumer Price Index (CPI)
One of the easiest ways to analyze inflation and deflation is by checking the CPI. It will give you the essential details about the changes in the price level of a basket of market goods. A quick glance on this indicator helps to understand if the same products and services cost more or less now.
How to trade the CPI:
- A rise in the CPI indicates a period of inflation, while a drop in it means deflation (in other words, consumer’s buying power increases). A rise is undeniably good and closely followed by the bullish trend, but a fall brings a bearish trend along.
- Central Banks use the data to update the economic policy: high inflation usually leads to the hike in the interest rates.
4. Unemployment Rate
One of the most important economic indicators is the unemployment rate. It reflects the percentage of unemployed workers in the total labour force. Basically, the final figure consists of 3 parts all of which are usually published on the same day: the unemployment rate, labour force participation rate, employment-population ratio.
How to trade the unemployment rate:
- Compare the new rate to the forecast. A higher reading is negative or bearish while a lower one is generally supportive or bullish for the currency.
- It also shows the health of the economy and helps Central Bank to set the new policy. For instance, the low rate usually leads to higher interest rate.
To start profiting on the news you definitely need to understand which releases are the most important, when it’s published and how can it shape the market. Knowing the basic rules and market reactions is the key factor of successful news trading.