Home > How to trade with Fundamental News

The Basics of Fundamental News

I know sometimes this newsletter is not the easiest read.  As a matter of fact, I think if I am an absolute beginner, I would  probably just unsubscribe...

Well, don't do that just yet! That's why I am writing this email to you.  I want to give you a quick lesson on news trading so that  you can follow my newsletter.  If you are a seasoned trader, then probably you should delete this email right now... But if you are new to this fundamental news trading business, then I urge to read on.

First of all, let's define some terms that I use in this newsletter.

1.  Forecasted (Consensus or Expected) Figure: This is usually derived from a survey done by financial news organizations such as Bloomberg, Reuters, etc...  Usually they get a number of economists, anywhere from 20 to 240, and ask them what number they think it will be.  After getting all of the numbers, the highest and the
lowest are taken out with the rest averaged out to a single "averaged" figure.  That is why with different news organizations will have a slightly different consensus number.

2.  Deviation (or Surprise Factor): is the difference between the actual release number and the forecasted number.  Let's say that CPI is expected to be 3.0% and the actual number came out as 3.3%; the deviation is then 0.3%.

3.  Actual Figure: This is the actual release figure from the official source of the information. 

4.  Revision: This is the revised change done for previous release figure, usually the month before.  It could sometime impact the market greatly if the revision is huge.  Usually if we have a good deviation with a good revision number, the market will react even more.

Now let's define what is Fundamental Trading:  Every major news release has a forecasted or consensus figure determined by economists beforehand.  If the actual release figure is different from the consensus or forecasted (or expected) figure, the market is surprised and will react to the release immediately.  The bigger the surprise, or deviation, will produce bigger reaction.  Based on historical data, we can predict that a particular deviation will
trigger a minimum amount of pips movement.  If a news release consistently moves over 40 pips with a particular deviation, we will expect that a similar deviation in the future will likely to cause the market to move 40 pips. 

See, it is really not that difficult.  My newsletter will only  include these particular releases with a good track records.  Sometimes a high impact news will be excluded because of the lack of track records.  Fundamental Trading is gaining an edge over market volatility, not gambling.

There are actually several ways to trade news, the most common one is to trade the news as it is being released.  This is a little  difficult nowadays since brokers are widening spread, freezing their platforms, or use slippage to discourage traders from taking  advantage of the news.  But you can always learn to trade the after
market effect of the news, or even get into the market pre-news.

Technical & Fundamental Forex Trader
CEO, Forexnext.com, Sunpips.com, Suninside.com
Introduction Broker (IB) Alpari UK
Forex Education and Trading Advisory Consultant

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