Foreign Exchange Trading and Economic Data

The reason this style of trading is so attractive is because the currency market makes significant movements within minutes after important economic data is released. These movements, which can exceed 50 pips in a short time span, offer some excellent trading opportunities. However, due to market volatility and unpredictability, you shouldn’t start trading the news until you have a fair bit of experience with foreign exchange trading.

Since the Forex market is a global and decentralized market, if you do decide to trade the news, you will have plenty of opportunities to do so because economic data is being released all the time, practically on a daily basis. This means that you will need to learn when data is released by each major economy so that you can be ready to trade.

Timing is important but you also need to be aware of the level of impact different data has as well as past and forecasted figures. This is because the difference between the forecast and the actual numbers is what will determine the size of the movement as well as the direction.

For example, if the actual numbers are equal or close to the forecast then you will likely not see much movement in the market. On the other hand, if the numbers are better or worse than the forecast, then you will probably see a substantial move up or down, respectively.

Foreign Exchange Trading and Economic Reports

As already mentioned, if you want to base your foreign exchange trading on the news then you will need to be aware of the important economic reports. Not only that, but you will have to delve a little deeper so you can understand the implications of each report on the economy, which will help you better predict market movements before they happen.

However, there is one caveat, namely that sometimes the market starts to move before data is released based on rumors. Due to market psychology, rumors can drive the market and then you might have the surprise that the data is released and the market quickly reverses direction. This means that your best option is not to let emotions rule you and jump in as soon as you see the market take off, but to wait for the actual numbers to be released and only then open a position.

There are anywhere between five and ten economic news releases per day. However, not all of them have the same impact but it does pay to be aware of the US news release schedule. This is because the USD plays a significant role in foreign exchange trading.

In regards to the economic reports themselves, some of the most important include employment growth, interest rates, trade balance, GDP, retail sales, the Consumer Price Index, the Producer Price Index, deficit and more. The good news is that these reports are released by every country and have a similar impact on foreign exchange trading.

However, it is important to remember that news trading is not for everyone because it relies on market movements in the short term. This means that it is better suited to day traders because you will be practically stuck in front of your computer screen when the data is released.

You need to remember that this style of foreign exchange trading, while it can generate significant profits, can also lead to substantial losses due to the extreme volatility of the market. If you are caught on the wrong side of a trade you can lose hundreds of pips just as you can make hundreds of pips.

Related posts:

1. Forex Exchange Rates: Relevant Economic Reports
2. Forex News Trading
3. Forex Exchange Rates: Market Psychology and Market Manipulation
4. Factors that Impact Forex Rates
5. Foreign Exchange Currency Trading
6. The Forex News Trade: Proof that Fundamental Analysis Does Matter