News in the context of forex trading is understood as the publication of economic data or policies by certain authorities from a country. These data and policies are usually classified into 3 types based on their impact on the foreign exchange market.
1.High Impact
News high impact is the publication of economic data that is considered very important. It is usually a representation of a country’s economic situation or a projection of future economic developments.
From the perspective of a forex trader, high impact news is a time when the market has high volatility, so the price movement is wider than usual. Therefore, many traders take advantage of this moment as an opportunity to make big profits instantly.
However, behind the potential to provide greater profits, high impact news also carries a far greater risk than usual market movements. This risk does not only come from market fluctuations which are difficult to predict, but also from problems that arise when market volatility increases, such as requotes and slippage.
Examples of news that fall into the high impact category are: Non Farm Payroll (NFP), IMS manufacturing, Interest rates and others.
2. Medium Impact
News medium impact is a category of economic or policy data that has a moderate impact on market price movements. High impact news is also economic data that market participants always pay attention to. However, from the perspective of retail traders, medium impact news is almost always ignored because it does not have a large impact on price movements.
3.Low Impact
Low impact news is economic or policy data that has little impact on the foreign exchange market. These data are not unimportant, but they are not directly related to economic growth. So it is not so attractive to market participants. And for forex traders, low impact news is never even discussed.
Trading Risk during News High Impact
Trading when high impact news is released can indeed provide big profits. Several years ago, in the trader community, the most impactful news was the US NFP. And it is almost always busy talking when the news is nearing the time of release or publication.
High impact news makes the market have a wider range of price movements than the daily average range, can be doubled or even more. For this reason, many traders deliberately take their time before the news is released. They prefer to wait for the news to be published and open positions shortly after. The goal is to get certainty about the direction of post-news price movements.
Even though in this way, most traders actually still lose when it comes to news. The reason is because the price movement when the news is not directly in one direction. Rather it fluctuates in both directions making it very difficult to predict. As a result, even though traders know that the economic data released will make the market bullish or bearish, traders still experience losses.
In addition, because the expectation of traders when news is to get large profits. Traders often use lots that are too large compared to the capital used, so the risk of the transaction becomes immeasurable.
What to do when News High Impact is released?
News high impact does have a high risk. The main risk comes from market fluctuations that are difficult to predict. But there are also other risks such as requotes or slippage due to significantly increased market volatility.
These risks make traders have a higher chance of experiencing a loss. And even due to requotes or slippage, traders can lose large amounts, because losing positions cannot be closed.
Even so, high impact news really shouldn’t be feared, so we close positions before the news is released. But it also doesn’t need to be prioritized so we spend time just trading when the news is released. We only need to trade as usual, do analysis using the method we usually use, make a trading plan and manage risk well.
If you use a short-term strategy or scalping, of course, the lot used is relatively large, so it is quite risky if you hit a news release, moreover, short-term trading styles rarely use stop losses, so the right decision is to close positions before the news is released. Most scalpers prefer to avoid news rather than trading news in the short term.
If the strategy used is long term and uses a relatively small lot, holding positions can be taken into account as long as the confidence in the news to be released does not have a very large impact and is in the opposite direction to the position being held. Usually long term traders will tend to ignore news even though it has a high impact because the targets reached are very large, for example hundreds of pips. As long as you are sure of the long-term analysis, high impact news will only have a small effect on the position being taken.
The use of stop losses can also be used to influence the decision to close a position or not before high impact news is released because most traders who apply stop losses and take profits will not close their positions until one of them is executed, namely traders who trade with the “set and forget” scenario. But a trader can also close his position ahead of a high impact news release even though he has set TP and SL for certain reasons such as being sure of the direction of price movement after the news release or for the efficiency of his trading ammunition so he pulls over first and opens a position again after market conditions calm down. Another alternative is that there are traders who use hedging (locking) strategies to lock positions ahead of news releases to minimize losses.
