ADVANCE FOREX EDUCATION: PART THREE: APPLYING ECONOMIC DATA TO FORM YOUR TRADING STRATEGY

 ADVANCE FOREX EDUCATION: PART THREE: APPLYING ECONOMIC DATA TO FORM YOUR TRADING STRATEGY

 

THESE ARE THE FIRST STEPS YOU MUST TAKE:

 

1.Knowing exactly when each economic indicator is due to be released,because, economic indicators are the live wire of forex trading. 

2. Keeping record of the calendar of all economic events of the week so as to track all the reports as they come in. Therefore, I would recommend you use the Forex peace army and Cashbackforex calendars.

 

3.  Understanding what particular aspect of the economy is been revealed in the data and the default currency pair of the affected country. For example, you should know which indicators measure the growth of the economy –[GDP] and the others. Such information is readily provided by the economic calendar providers.

 

4.  You must note that all economic indicators are not created equal. This is so because some have acquired much greater potential to move the market than the others.The calendar will mostly indicate the high impact news events.

5 .know the indicators the market are relying on. For example, if the prices of goods and services or inflation is not a crucial issue for a particular country, inflation data will probably not be as keenly anticipated or reacted to by the markets. On the other hand, if the economic growth of a nation is a vexing problem, changes in employment data  or GDP will be eagerly anticipated and could precipitate tremendous volatility following their release.

6.  The data itself, whether it is not an important aspect of that economy at the moment and  whether or not it falls within the market expectation.If the released data is within the expectation of the economists surveyed, the price action may be muted. What all news traders anticipate each time a report is being awaited, is the element of surprise. There must be a significant difference between the expected figure and the actual figure released.

7.  Don’t get caught up in the headline news. Getting caught up in the headline news is being hasty in taking a decision whether to trade the report or not. There are other components of the news that can affect price action. One of such is the revisions.

8.  Speaking of revision, don’t be too quick to pull the trigger should an economic indicator fall short of market expectation. Most economic releases contain revisions to previously released data. For example, if US Durable Goods Orders should rise by 0.5% in the current month, while the market is anticipating them to fall, the unexpected rise to could be the result of a downward  revision to the prior month. The Durable Goods Orders figure might have been originally reported as a rise of 0.5%, but now, along with the new figure, is being revised lower to say, a rise of only 0.1% therefore, the expected rise in the current month is likely the result of a downward revision to the previous months data.

 

The negative revision will definitely affect the positive figure released and conversely, positive revision will adversely affect negative figure released.

9. Don't forget that there are always two sides to a trade in the foreign exchange ( forex )market. It is either you are buying or you are selling. Once you have taken a position, there is no going back if you just discovered that you had made a mistake. What you should do is to quickly close the trade as fast as you can.

10. Do not be hasty in your judgment of any price action. Why we lose so much in forex trading, is by chasing the price action. There will always be price movement in the market, whether a news item has just be released or not. We intend to forget very often that the price going up now can turn 180 degrees south in the next moment. I sympathize with those forex scalpers and the reason is simple. You cannot be a professional forex trader by practicing how to scalp the markets for pips.

Most economic indicators can be divided into two categories. [1] leading indicators and [2] lagging indicators.

1. Leading indicators are used to predict changes in the economy and

 

2. Lagging indicators are the economic factors that change, after the economy has already begun to follow a particular pattern or   trend.

By taking note of all the changes you see and mastering the movement of prices, you are certainly on your way to developing your own trading formula, instead of following the majority of forex losers. It is only in forex trading the majority is not in control of their destiny in achieving financial freedom.