Tradeology Presents

News And Trading

News And Trading © Published by Alaziac Trading CC Suite 509, Private Bag X503 Northway, 4065, KZN, ZA

www.tradeology.com

Copyright © 2014 by Alaziac Trading CC, KZN, ZA

Reproduction or translation of any part of this work by any means, electronic or mechanical, including photocopying, beyond that permitted by the copyright law, without permission of the publisher, is unlawful.

Trademarks: Alaziac Trading CC, Tradeology

RISK DISCLOSURE STATEMENT / DISCLAIMER AGREEMENT

Trading any financial market involves risk. This report and all and any of its contents are neither a solicitation nor an offer to Buy/Sell any financial market. The contents of this material are for general information and educational purposes only (contents shall also mean the website http://www.tradeology.com/ or any website the content is hosted on, and any email correspondence or newsletters or postings related to such website). Every effort has been made to accurately represent this product and

its potential. There is no guarantee that you will earn any money using the techniques, ideas and software in these materials. Examples in these materials are not to be interpreted as a promise or guarantee of earnings. Earning potential is entirely dependent on the person using our product, ideas and techniques. We do not purport this to be a “get rich scheme.” Although every attempt has been made to assure accuracy, we do not give any express or implied warranty as to its accuracy. We do not accept any liability for error or omission. Examples are provided for illustrative purposes only and should not be construed as investment advice or strategy. No representation is being made that any account or trader will or is likely to achieve profits or losses similar to those discussed in this report or anywhere on http://www.tradeology.com/. Past performance is not indicative of future results. By purchasing any content, subscribing to our mailing list or using the website or contents of the website or materials provided herewith, you will be deemed to have accepted these terms and conditions in full as appear also on our site, as do our full earnings disclaimer and privacy policy and CFTC disclaimer and rule 4.41 to be read herewith. So too, all the materials contained within this course, including this manual, whether they appear on our domain(s) or are in physical form, are protected by copyright. "Warning: The unauthorized reproduction or distribution of this copyrighted work is illegal. Criminal copyright infringement, including infringement without monetary gain, is investigated by the authorities and is punishable with imprisonment and a fine." We reserve all our rights in this regard. Alaziac Trading CC, in association with http://www.tradeology.com/, the website, content, and its representatives do not and cannot give investment advice or invite customers or readers to engage in investments through this course or any part of it. The information provided in this content is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject us to any registration requirement within such jurisdiction or country. Hypothetical performance results have many inherent limitations, some of which are mentioned below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and actual results subsequently achieved by any particular trading program and method. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program or system in spite of the trading losses are material points that can also adversely affect trading results. There are numerous other factors related to the market in general or to the implementation of any specific trading program, which cannot be fully accounted for in the preparation of hypothetical performance results. All of which can adversely affect actual trading results. We reserve the right to change these terms and conditions without notice. You can check for updates to this disclaimer

at any time by visiting http://www.tradeology.com/. Governing law: this policy and the use of this report/eBook, provided in any form, and any content on the website are governed by the laws of the Republic of South Africa. Further details on this are found under the Terms and Conditions on our site. Please ensure you read and agree with all Terms and Conditions as set out on our site before using any of the materials. Your use and reliance on the materials is based on your acceptance of such Terms and conditions and policies as appear on the site.

TABLE OF CONTENTS

INTRODUCTION ........................................................................................................... 4

HOW NEWS AFFECTS THE MARKET ............................................................................. 5

TOOLS FOR MONITORING KEY ECONOMIC INDICATORS ............................................. 7

Economic Calendar .......................................................................................................................................... 7

MARKET MOVING EVENTS .......................................................................................... 9

HOW TO TRADE THE NEWS ....................................................................................... 11

General Approach ............................................................................................................... 11 1. Trading a News release ...................................................................................................... 11 2. Trading the strong trend .................................................................................................... 12 3. Trading the news with pending orders .............................................................................. 13 4. Trading on reversal ............................................................................................................ 15

CONCLUSION ............................................................................................................ 17

4

Introduction

Welcome to this report on news and trading.

One of the most influential forces that moves the Forex market is the news, or fundamentals. There are

two major types of analysis: Technical and Fundamental. While technical analysis focuses on price

movement, patterns and algorithms to predict the future price, fundamental analysis focuses on the

news releases and overall sentiment of the market to predict future moves.

One of the benefits of the Forex market is that it’s open 24 hours a day, therefore it is affected by the

news from around the globe.

Have you ever been in a trade and the price suddenly changed its direction and took you out with a full

stop loss in just a matter of seconds? That is how the market reacts to certain news releases.

This report will help you not only avoid losses like that, but to gain on such movements. We will discuss

what is actually moving the market and how you can trade the high impact news releases.

Even if your trading system is purely mechanical and technical, you could further improve it by being

aware of some of the major news events. It will help you filter out the very risky trades as well as help

you predict the market moves.

Fundamental analysis can be very easy and in this report I’ll show you the steps to improve your trading

score and your profitability.

5

How News Affects The Market

News or fundamental data that is being released on daily, monthly, quarterly or yearly basis is the key

indicator of how the economy of a certain country is faring. If we know the strength of the economy and

the future moves, we can predict how prices will react.

The key figures here are the Central Banks. All developed countries have Central Banks (U.S. Federal

Reserve (FED), Bank of England (BoE), Bank of Japan (BoJ), European Central Bank (ECB), etc) and their

job is to come up with monetary policy to keep the economy stabile. Of course, that monetary policy will

be based on the economic indicators that have been released. This influences the country’s currency.

That’s why it’s crucial for us as traders to know what Central Banks are thinking, because if we know

what they are thinking we can try to anticipate their actions.

So, on one side we have economic indicators that we call “fundamentals” or simply news, and on the

other side we have Central Banks which have tools to react upon the releases of those economic

indicators.

Therefore, we can trade news releases on a short term basis. That is, we can trade at the time or just

after certain news is released and profit from the market’s reaction to that news event. We can also

trade the news on a long terms basis if we know how the Central Banks will react.

Economic Indicators

Production

Geoploitical

InflationGrowth

Employment

6

From the diagram you can see that the Central Banks are watching employment, growth, inflation and

production figures as well as geopolitical factors. They are acting upon those figures with the tools at

their disposal, which are: interest rates, price limits, quantitative easing and language.

If you’re focused on what the central banks are doing and saying, you could to a degree predict their

future moves.

Let’s take a look at a practical example.

If inflation in the U.K. is high, the Central Bank (BoE – Bank Of England) will want to reduce the inflation.

They will do it by increasing the interest rates, which means that the currency will increase in value. And

we will know this will happen if we monitor what the Central Bank is focused on and if we monitor the

news and the economic indicators.

One important thing to remember is that the Central Banks will usually focus on only one thing at the

time. Therefore, we’re not concerned with other economic indicators (like growth, unemployment etc.

in this particular example).

So you can see that the process is fairly simple. First, focus on the key economic indicators, then focus

on what the Central Banks are watching and you’ll be able to better predict their moves. How will you

know all that? How you can find that out? We’ll address that in the following chapters.

Tools

Inerest Rates

Quantitative Easing

Language

Price Limit

7

Tools for monitoring key economic indicators

Tools used to determine the overall sentiment of the market are freely available. Some of the best ones

are:

Bloomberg

CNBC

Wall Street Journal

CNN Money

We will be focused on the currency sections of those pages.

Spending half an hour a day reading those articles that are freely available to you will keep you in the

loop of what’s going on with the markets and, more importantly, what will happen on the markets.

You can see now that you don’t need a degree in finance to be able to know and learn what events are

occurring and why they are when it comes to markets. Just use what is available to you on daily basis

and you will master trading the fundamentals in no time.

There are 4 key things that you should be looking for in articles/news which will help you determine how

the news will affect the market and how the market will move:

1. Currency Pair – of course, the main thing to know is which currency pair is being affected by the

news.

2. Direction of the move – we need to know the direction of the move for our currency pair

3. Reasons for the move – while the first two points will probably be in the headlines, reasons for

a move will be found in the actual article itself. If the article doesn’t say what is the reason is

behind the move of that currency pair, then we’re not interested in that article.

4. Expectations from the analysts – we want to know what the analysts predictions are for that

currency pair. They won’t always be 100% correct, however – they will give us a general

perspective.

You can see that by being aware of what moves the market and why it moves, you can more accurately

predict the future moves of the market.

Economic Calendar

One of the most important tools you’ll use when trading the news is an Economic Calendar.

An Economic Calendar is basically a list of news scheduled for a future time. It tells you their

impact and the time of release. But, it will also tell you the predictions for each.

8

It’s very good practice to open up the economic calendar every day before you start trading and

take note of the high impact news events. Not trading around the time of high impact news can

significantly increase your profits as you’ll be reducing risk.

Economic calendars will usually have:

Date

Time

Currency

Impact

News Name

Actual Figures

Forecast

Previous

On this image, you can see what an Economic Calendar would look like.

Date Time Currency Impact News Actual Forecast Previous

09/05 08:30

am

USD High Non-Farm

Employment

Change

200 230 215

For instance, on September 5th, at 08:30 am the Non-Farm Employment Change was released. It

was a high impact news event that affected the USD. Previous month’s figures were 215K,

expected figures for the current month were 230K, while the actual figures that came out were

200K.

9

Market moving events

Before we start to learn how to actually trade the news, first we must learn about which news moves

the market the most.

Here’s a shortlist of the highest impact news events:

1. Employment Data

2. Interest Rates

3. Inflation

4. Gross Domestic Product (GDO)

5. Retail Sales

6. Durable Goods

7. Trade and Capital Flows

8. Macroeconomic and Geopolitical Events

Employment Data

Non-farm payrolls is the name given to the data that pertains to the number of people who are

employed within the US economy, and it is released the first Friday of every month by the

Bureau of Labor Statistics. Strong decreases in employment indicate a contracting economy,

while strong increases are perceived indicators of a prosperous economy.

Interest Rates

This is always a major focus in the Forex market. Since the central banks mandate monetary

policy and supply, they are the prime focus of investors and the various market participants.

Inflation

This is the measure of increases or decreases in pricing levels over a period of time. Due to the

immense number of goods and services available in a country, usually a grouping of these

goods and services are used to measure changes in the pricing. Increases in pricing indicate an

increase in the inflation rate which in turn can devalue that country's currency.

Gross Domestic Product

This is the measurement for goods and services that were finished over a period of time. The

GDP is broken down into 4 categories:

1. Business spending

2. Government spending

3. Private consumption

4. Total net exports

10

Retail Sales

The measurement of sales recorded by retailers over a period of time is a reflection of either

increased or decreased consumer spending, depending on whether sales are up or down for

the comparative period a year ago. This indicator gives market participants an idea as to how

strong or weak the economy is.

Durable Goods

Goods that have a lifespan of three or more years are considered durable goods and they are

measured in quantities that are ordered, shipped, or unfilled over a period of time. These are

also an indicator of economic spending or the lack of it.

Trade and Capital Flows

Currency values can be significantly impacted by monetary flows that result from certain

interactions between countries. When imports exceed exports, there is a tendency for the

currency value to decline. Increased investments in a country can lead to the opposite result.

Macroeconomic and Geopolitical Events

Elections, financial crises, monetary policy changes, and wars can influence the biggest changes

in the Forex market. These events can either change and/or lead to reshaping of a country's

economy.

11

How To Trade The News

General Approach

In the previous chapters we saw what we need to look for when we’re reading the news and articles and

which news moves the market the most.

Steps before taking the trade:

1. Cause of the move – using the tools I mentioned, find out what is the cause of the move.

2. Fundamentals – fundamental picture of the currency pair, what do the Central banks looks at.

3. Fair Price / Value – what is the fair price, the real value, based on the outlook from the Central

Bank.

4. Good Entry Price – based on the analysis, you need to know where/when to enter the market.

5. Sentiment – overall mood of the market.

1. Trading a News release

After you’ve done the analysis explained in the previous chapters, you’re ready to take the trade. Some

of the highest impact news events will move the market significantly in a matter of seconds, such as the

Non-Farm Payroll. Therefore, you should decide, based on your analysis, whether to enter the trade just

before the news or after its release.

Entering the trade after the news is released reduces the risk drastically.

12

Where to set targets?

After you have detected where you will enter the market, you must decide where you will exit the trade.

Here is where technical analysis come into play. We use support and resistance levels to determine our

targets.

2. Trading the strong trend

Trading the pullbacks on the strong trend is another tactic we can use when trading the news. It can also

be combined with the previous method.

For this we’ll need a currency pair that has a strong trend, preferably mid or long term. All the

indicators, sentiment and Central Bank’s language must support that so that we can be sure that the

trend can’t be changed easily.

Then we wait for a news release that is strong enough to move the market in an opposite direction on a

short-term basis, but not strong enough to change the overall trend. Basically, we wait for the news to

create a pullback.

13

In this example you can see that the overall trend is bullish. However, one negative news release

created a short-term bearish moment. After the market settled down, we can start buying, since we

know that the particular news event wasn’t strong enough to completely change the direction of the

trend.

3. Trading the news with pending orders

When very high impact news is about to occur, like the Non-Farm Payroll, you can approach it by using

pending orders on both sides of the price with very small stop losses.

This tactic works best with Non-Farm Payroll and Central Bank Statements.

Place the Buy-Stop pending order 10-20 pips away from the price with the target set to 30-50 pips and

stop loss set to 2-5 pips. Do the same with the Sell-Stop pending order, place it 10-20 pips below the

price with the target set 30-50 pips and stop loss set to 2-5 pips. Do it just before the news release.

14

In this example you can see two pending orders, Buy-Stop and Sell-Stop. Since stop losses are so small,

the risk to reward ratio is huge. If the price doesn’t reach your target and reverses, you’ll only be losing

few pips, while the potential gain is 30-50 pips. This will all happen in a matter of seconds, that’s why we

use pending orders, since it will be almost impossible to enter and exit the trade that fast.

Once the price touches the pending order, you will be automatically taken into the trade.

15

4. Trading on reversal

When trading high impact news, very often you’ll see the price move in one of the directions very

quickly, but then it will change direction and settle back into its normal state. We’ve already discussed

how to trade those news events (especially the NFP), but there is an opportunity for more profits by

trading those reversals.

7-Feb-14

Previous month: 85

Forecast: 185

Actual: 113

Minutes after news Pips

m1 52

m2 -9

m3 -11

m4 -1

m5 -3

16

In this example for the NFP on 7th of February 2014, you can see that in the first minute price went up 52

pips, but then started reversing. This is a chance to score a few more pips.

When entering the trade on a reversal, set your target at half of the distance from the first, initial move.

Set you stop loss 2-5 pips away to avoid unnecessary risk.

17

Conclusion

Trading the news can be very profitable and, contrary to the general opinion, fairly easy and straight-

forward.

It takes a small amount of time each day for reading and researching, but the reward it can give is

certainly worth it. Hopefully this report pointed you in the right direction and helped you understand

how trading the news works.

Of course, test any strategies on a demo account and if you find them profitable and suitable for your

style of trading, then only move on to live account.

Sincerely,

http://www.tradeology.com/