By Sean Hyman “How often have you heard you can make XXX% just by reading the newspaper and then trading that news in the Forex market? I know I’ve seen that countless places over the last few years.

Unfortunately, the reality is not quite so easy.

The truth is professional traders know when to play a particular piece of news and when to just ignore the news altogether and trade Forex based on trends they see developing.

So let’s take it back to the basics for just a moment. First of all, in the Forex market, you only want to trade what I would call “fundamental news.” Fundamental news means only the biggest events in the news. The “biggest events” could be wars, scandals, plagues, and elections in the longer-term (a few days to a few months).

On a day-to-day basis, central bank moves, government decisions, and key country data (including the numbers Chuck often gives you here in FX University) can move the Forex market.

Such fundamental news events can be used two ways (shorter term and longer term). The longer term fundamental view is formed by watching major news events over time and noting whether a country is meeting its necessary fundamental numbers to keep the country moving smoothly. It’s much like a stock trader listening to earnings reports each quarter. It helps you take a particular economy’s pulse.

However, the other way that it can be used is in the short term where you want to “react” to a news event. So let’s talk about what you want to look at and how you can get a good idea about whether the event is “tradable” or not.

A great place to go to is www.dailyfx.com. Once you’re there, you can click on their “Calendar” tab and you will see a list of fundamental news events like below.

Only Trade the “High” Events!

You will notice that they go through all of the hard work for you in telling you how important the news event is. They list them as being: low, medium or high.

Focus on the “high” events. These are the really important events that the big money traders (read: professional traders in the industry) watch. This is also the more crucial country data coming out that day. Therefore, these news events could actually move the market and force the market to “pop” upon the announcement.

All Novices in First!

Now then, you will want to wait for the economic number to be released and see if it was above or below expectations. Here’s the key! Almost all novices just go in and “buy good news” and “sell bad news.” They want to be the first one to hit the buy or sell buttons.

However, pros don’t do this. They wait to see how the market starts to respond to the news first. Why?

It’s because sometimes the news has already been priced into the currency before it was even released. In other words, the market’s traders were already expecting a certain event, so they traded off it already. In that case, the currency’s price already reflects those traders who bought in early, and there’s no point in trading off that particular news item.

In fact, a currency could actually go the other way, and “sell off” on such news if the good news is already priced into the currency. It’s called “buy the rumor, sell the news.” Pros do it all the time if they see good news coming. They buy in before the news comes out, and then they sell as soon as the news hits the wires and the novices jump in. It gives them more liquidity. (Keep in mind: This is very hard to do.)

On the other hand, a pair may very well trade in line with the news event. When good news comes out, a currency tracks the good news BECAUSE it wasn’t already priced in by a run up beforehand. In other words, it’s a surprise in the markets.

Are you seeing a pattern? If you buy in ahead of time, you may be right, but you could be drastically wrong. In fact, in my opinion, those that buy ahead of the release are the biggest suckers of them all. It’s a gamble…a coin toss, at best.

If you buy as soon as the news comes out, you may already be late to the party because pros bought in before the news was released. Fortunately, there is a solution…

Here’s What You Do!

You need to wait until after the news comes out….and, you never want to be the first one in. Why? Because the initial reaction isn’t always the final reaction. So once the news is released, check your currency charts. Is the currency moving? And in what direction? Take a few minutes and watch which way it’s headed, and then buy.

Also, once a move starts, then you can get in more safely 30 minutes or so later when the volume returns to the market and the trend is more solidified.”

So sit on your hands. Make sure you have read the actual report and any news or comments about the release, first! Then once you’ve had time to analyze how the market has responded and have allowed time for the volume to really return (and for the spreads to narrow), then you can trade the trend that the market has set in place.”