How Can News Events

Affect Forex Trading

News events can have dramatic effects on forex currency pairs.  Take, for example, a breaking news story that one of the countries that is traded in the Forex market goes to war with another, this is going to create ripples all throughout the financial markets, including the foreign currency markets and all the corresponding currencies values.

There are two major schools of Forex traders: Technical traders and fundamental traders.  Let us look at the differences between the two schools of thought about how to approach Forex trading when trying to speculate on the direction a currency pair will move in.

Technical Traders

Technical traders tend to believe that whatever is going on with the charts for a currency pair has already taken into account all of the other factors that are going on, and that the price inherently will reflect the environment as it is.

Fundamental Traders

Fundamental traders are the ones who would be more interest in the breaking news events of the day—believing that if they can spot a news story as it is happening they can anticipate the direction a currency pair will take and thus be in a prime position to be able to trade based on their educated guess.  And that’s just what all trading is—not having a magic ball, but rather making an educated and informed decision about when to place a trade.  Not all will win, but hopefully they will all add up to be profitable.

The two schools of thought are very different, though some traders believe in a Forex trading methodology that is based on a combination of the two, sometimes weighted in one direction or another.  News events can have profound effects on the currencies that underlie them and so there is a strong care for the fundamental trader’s approach to price-move anticipation.  In most trader’s minds it is a good idea to keep both schools of thought in mind when preparing to trade.  However, Forex trading systems exist that rely solely on one or the other, and they both work.  Make sure to find the one that works best for you.