Foreign Exchange Fundamentals: How To Handle Forex Events And How To Forecast Their Outcomes On The Currency Markets
If you want to make money in the forex market then you will have to know forex basics. You may have a good mathematical understanding of trends and charts but it is also essential to understand the foundation on which the foreign exchange trading markets are based. If you do not, you could enter a trade at exactly the wrong time.
The foreign exchange is heavily influenced by national and international news and current affairs. This above all relates to financial news but other important events can have an effect too. These may be expected or unexpected.
For example a disaster such as a serious earthquake or terrorist attack is usually unpredictable but could have an impact on currency values. There is nothing you can do about this except always to be sure to use stop losses.
A more predictable event would be the announcement that the Olympic Games will be held in a certain country. This could strengthen confidence in that country's economy and lead to a rise in the value of its currency. At the same time the other major contenders for the Games may endure a fall in currency values. So it is important for a trader to know when an announcement like that is expected, and which countries are involved.
Similar situations are the financial reports that are released almost daily in many countries. Less regularly, but usually foreseeable, there will also be announcements about interest rates, inflation, gross domestic product and other matters of national economic importance.
Try to avoid trading on rumors. You might see news reports or hear other traders speculating that an announcement will move markets one way or the other. Do not trade on the belief that they are right. First because they still could be wrong, and second because if it is such a sure thing, the price has probably already changed to take into account the rumors and you will not gain much even if they are right.
Remember that you are always trading on two nation's currencies, not just one. If your own country is one of them, you will have much easier access to financial reports for that currency and it is easy to forget to check on events in the second country. This is particularly valid for Americans because dollar news tends to dominate the forex alerts anyway. It is even more true if you are trading the dollar against a minor currency. You may have to take positive steps to ensure that your information is not one-sided.
Even if you are just a beginner forex trader, it is vital to keep in mind these aspects of fundamental analysis for the foreign exchange market. Exiting the market before any major announcement is usually the best move for a beginner. As you become more experienced you may develop a system based on this type of fundamental analysis, but it is important to become familiar with all of the foreign exchange basics first.
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