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August 16, 2008

5 Forex News Reports Successful Traders Devour

economics news
Jason Fielder asked:


If you’re going to be a successful Forex trader, then part of that involves learning what profitable Forex traders already know. One of the major movers of the Forex market are the economic reports of each nation.

This isn’t just restricted to the United States, either. Traders looking at the Yen, British Pound, Canadian Dollar, or Euro (or any currency, for that matter) will look at the economic news reports that are released by each of these nations.

There are many minor economic reports, some of which can spill over into the larger reports (look at the U.S. Housing bubble, for example), and while the “minor” reports are useful, this is going to concentrate on the big five, because these are the five major economic reports that will have the strongest and most immediate impact on the Forex market.

These are also the five reports that are acted upon by the most traders, so being able to keep track of these are critical if you’re going to be able to keep a finger on the pulse of the Forex market.

The five major economic reports to keep track of are:
1. Unemployment/Non-Farm Payroll Reports
2. Interest Rates
3. Consumer Price Index
4. Trade Balance (Deficits vs. Surpluses)
5. Retail Sales

Unemployment/Non-Farm Payroll Reports
No matter what you’re trading, this is always one of the most important reports about a particular area’s economy. A low unemployment percentage is one of the strongest indicators of a strong, robust economy. Likewise, the opposite also applies. A country with a large unemployment rate is going through hard times.

Surprises in anticipated unemployment numbers can have a strong effect on the Forex market, as well. For example, if the unemployment rate is expected to be around 6.5% for the nation, and the report comes out with 4.9%, then that nation’s currency is going to strengthen thanks to the unexpected good news.

Interest Rates
Interest rate changes directly affect the strength of a currency. A higher interest rate will usually cause a stronger currency because it will attract foreign investors and traders. Interest rates are one of the BIGGEST key influences in driving a currency either up or down; especially since carry trades remain popular among Forex traders.

Consumer Price Index (CPI)
The Consumer Price Index is a monthly report that gauges prices across the country and compares it to salary. Basically this means it tracks inflation, which is a major factor in the health of any economy. A sudden jump in inflation is never good news, and in some nations (see Zimbabwe) it can be absolutely disastrous, so keep an eye on when these reports come out.

Trade Balance
The trade balance refers to a nation’s trade surplus and/or deficit. This measures how much a nation exports versus how much it imports. A deficit means you bring in more than you send out, while a surplus is the opposite. Often times you may hear “trade deficit” referring to the United States, but this is not necessarily a bad thing – it depends on the situation and why the balance is tilted the way it is. This is also a monthly report in the United States.

Retail Sales
A nation’s report of retail sales may be the best indicator of how the common person feels about the economy. In the United States this is a monthly report of how sales are going for individual businesses. Some parts of the year are going to be much busier than others. December, for example, will always be expected to have great retail sales because of the Christmas holiday.

Knowing what these reports are and how they affect the markets will help you make better fundamental decisions when trading the Forex.

Daily Forex Market News – Do You Really Need Daily News?

economics news
Harold Hsu asked:


The currency market is particularly sensitive to market news, such as the non-farm payroll data announcement. Volatility during these periods of news announcements is notoriously high, and fortunes are literally made and lost in a short time span of a few minutes.

With these characteristics, it’s no wonder that many retail Forex traders pay extra attention to the latest daily news updates… their trading account depends on it!

Who Are News Traders?

News traders are people who trade exclusively on economic news announcements. Their aim is to make the most profit in the shortest time possible. It’s not unusual to have a market movement of a hundred pips of more, just 5 minutes after the news is announced.

News trading is a highly risky style of Forex trading, and is generally not recommended for novice traders. Amateurs who think news trading is a way to make easy money are often taught an expensive lesson by the market.

What If I Don’t Want To Trade The News?

For those who do not wish to trade the news, they often wonder if they should pay attention to the daily market news at all.

In my humble opinion, the answer is generally ‘no’.

The fundamental daily news is usually slowly incorporated into the market price, so a competent technical trader will already be able to take into account any unusual changes in price action.

However, there are of course exceptions to this rule of thumb.

While you probably don’t need to pay a lot of attention to the every-day news announcements, there are some economic news data release dates that you should avoid trading in.

These are the same economic news announcements that the news traders trade on. Some examples include the non-farm payroll, ISM manufacturing and FOMC meeting announcements.

The high price volatility experienced during these periods are best avoided by most traders… it’s better to keep your capital protected than to risk it on highly risky trades.



Forex Trading Fundamentals: Good News for the Dollar

economics news
Andrew Shiveley asked:


Over the past six months it seems like almost every major finance magazine has published an article related to the weakness of the dollar. If you are a currency trader like I am then this topic is particularly relevant to you because you need to know what the long-term trends of each currency are so that you can make profitable trades.

What you probably have not been reading about in the news are some of the events that have been happening behind the scenes or that will be happening in the near future, and why the American economy will ultimately regain its strength.

The single most significant factor affecting the American dollar is the trade balance, and the biggest portion of this problem is related to our war in the Middle East that should never have been authorized, yet is still costing us billions of dollars every single day. I will not spend a lot of time talking about the horrendous actions of the Bush administration (namely that they defrauded their way into office in order to wage a cultural genocide for the sake of gaining control over oil), but there are truly good things that have been happening behind the scenes and that will be happening in the near future.

You will not hear about many of these things in the mass media news outlets in America such as CNN and ABC, and there is an exceedingly simple reason why these manipulated news networks try to convince the American people that there is a threat of danger when really none exists at all: War is profitable. There are powerful groups in our world today whose agendas are motivated by greed and control, and these people engage in heartless wartime profiteering so that they may satisfy their lust for power. But it is not all bad: I will discuss some of the wondrous events that are causing these groups to rapidly lose their power, and what all of this information means for the currency markets.

The Bush Administration has dropped to single-digit approval ratings, and millions of Americans have gone to websites such as Impeach Bush and spoken out about their opinions of why this man is no longer our leader. Dennis Kucinich, a representative from my home state of Ohio that I have had the pleasure of meeting, is leading the way for the eventual impeachment and forcible removal from office of Bush and his war-mongering cronies.

The Bush Administration has inadvertently caused a global recession with their desire to wage a heartless war, and the signs are strong that the global community has finally come together and told these warmongers “Enough!” They are rapidly losing power as people are becoming more conscious and aware of the fact that they have been lied to by the controlled mass media outlets.

If you are looking for really good forex trading opportunities, I would be willing to bet that when the news releases come out stating things such as Bush’s impeachment or other things that peace-loving people the world over are working to create, there will be a large jump in the value of the dollar in the window of a day or two.

The really good news for the dollar and for the American people is coming from Japan. The Japanese are the largest holders of foreign dollar reserves (around $5 trillion dollars), and they have openly declared that they will no longer fund the American war effort.

The reason why I remain optimistic about the future of the American economy is because of the two main presidential candidates that have come forward to lead our country. In my mind (and in accordance with recent political data), the two main candidates in the 2008 presidential election will be Barack Obama and Ron Paul. Both of these men are benevolent leaders and are sufficiently equipped to rectify the errors of the Bush Administration, and Ron Paul has openly stated that he will abolish the Federal Reserve and the IRS to create a more prosperous America.

In the last paragraph, notice that I said the “American economy” and not the dollar. This is an important point, because many benevolent and powerful leaders are discussing new potential monetary systems for the United States that can lead to greater prosperity. The Federal Reserve system is based upon perpetual debt, and it is not sustainable because it steals wealth from the American people and puts it into the pockets of a few. This is all very good news, and so you may be wondering how this plays into your forex trading.

The dollar will continue to go down so long as our war is not stopped, and so for the next few months until the Bush Administration is forcibly removed from office or until they simply fade away to be replaced by a new leader, there will still be a downwards trend for the USD.

After our war ends due to internal political pressure from our benevolent leaders as well as financial pressure from the Japanese, many Japanese leaders are discussing the possibility of using their foreign dollar reserves to create a global humanitarian mission where they can bring knowledge and modern telecommunications access to countries that have not been able to provide it for themselves.

As this happens the American economy will regain strength because our trade balance will become much more sustainable. So ultimately for your forex trading, the downwards trend for the dollar will continue until these big benevolent changes occur, afterwards the American economy (as well as the global economy as a whole) will regain its stability.

Forex Trading Education – Fundamental Economic Indicators

economics news
Harold Hsu asked:


What Are Fundamental Economic Indicators?

Economic indicators are typically important news announcements that involve sensitive economic data.

How Do Economic Indicators Affect Trading Decisions?

Consider this example:

It’s Monday morning and the U.S. Dollar had been spiraling down in the past two weeks. At this point, it’s pretty safe to assume that there are many traders holding on to large USD short positions.

However, there is an important economic announcement scheduled to be broadcasted on Friday. Industry experts are estimating this coming announcement to reflect a positive outlook for the U.S. economy, and most traders will thus be expecting a short-term USD rally this Friday. As the week progresses, the traders will gradually be exiting their short positions to lock in their profits – they wouldn’t want the upcoming positive news announcement to eat away their gains!

In this example, you can see that economic indicators affect market prices on two levels:

1) Directly: When positive USD-related news is announced, the dollar rallies

2) Indirectly: Traders who are expecting the news to go against their open positions will slowly exit their trades, causing the USD to rise even before the announcement

How Should You Trade With Economic Indictors?

This is actually a trick question. Generally, one should avoid trading during the times of fundamental news announcements. This is because the market volatility during these periods is extraordinarily large, and the combination of this plus a high chance of slippage will almost guarantee that you lose money.

News trading is advised only for the advanced traders, and beginner traders should stay well clear of this territory.



Forex Trading – if you Want to Win Don’t Listen to the News!

economics news
Sacha Tarkovsky asked:


It is my firm contention that if you listen or pay attention to the news in forex trading you will lose.

The fact is in recent years and with the rise of the internet there is more and better news but do more traders win than 20 years ago?

No success is dependent on something else, not economic data.

Success I futures markets is dependent on something else:

A study of human psychology.

But surely supply and demand fundamentals move markets?

Yes they do to a degre, but it is humans that buy and sell and it is people who actually determine price.

If it was a simple case of studying supply and demand fundamentals a lot more traders would win, but they don’t and that’s a fact.

You need to study fundamentals combined with human psychology and see them as a whole.

The best way to do this is a system based upon technical analysis.

It actually studies both together.

As economic data comes out it simply assumes that all fundamentals are reflected in the price and show up in price action.

But it does something more:

It studies human psychology, which is constant and shows up in repetitive price patterns.

Therefore we have:

Fundamentals + Human Psychology = Price Action

And a chartist by following price action will study both together.

Take a recent example of how hard it is to study fundamentals in isolation.

Stock markets have tumbled around the world based on lower growth in the USA and China well, the fundamentals have been pointing that out for ages.

Yet until yesterday prices were rising, so what good would the news have done you?

Not much.

You would have been selling a bull market and losing as trader’s emotions and greed propelled prices higher despite bearish news from weeks or months ago.

This happens all the time in stocks, currencies or any other market.

Human psychology pushes prices to far up or down despite the news.

Viewing the market from an objective point of view

A chart allows you to step back and see the bigger picture without emotion and look for repetitive price patterns.

If you pay attention to the news, your emotions get sucked in to your trading and when they do, you will join the losing majority.

Act on what the price action tells you.

You will then see the fundamentals and human psychology combined, which is a great way to step back from the mayhem and see things from a non emotional and disciplined perspective.



August 15, 2008

The 8 Economic Factors that Affect the Forex Market

economics news
Justin Stewart asked:


Where economic theory will affect the Forex market on a long-term basis, the affect of changes in economic data is much more immediate. Oftentimes, the biggest companies in the exchange market are the various countries that participate in market activities and there currency is likened to shares in that country. It follows then that the country’s economic data is analogous to the earnings data of a company or business entity.

News and information regarding a country’s economy can have a direct impact on the direction that the country’s currency is heading in much the same way that current events and financial news affect stock prices, hence the importance of economic factors. The following eight economic factors will directly affect a currency’s movements in the Forex market.

Factor 1 – Employment Data
Non-farm payrolls is the name given to the data that pertains to the number of people who are employed within the US economy, and it is released the first Friday of every month by the Bureau of Labor Statistics. Strong decreases in employment indicate a contracting economy, while strong increases are perceived indicators of a prosperous economy.

Factor 2 – Interest Rates
This is always a major focus in the forex market. Since the central banks mandate monetary policy and supply, they are the prime focus of investors and the various market participants.

Factor 3 – Inflation
This is the measure of increases or decreases in pricing levels over a period of time. Due to the immense number of goods and services available in a country, usually a grouping of these goods and services are used to measure changes in the pricing. Increases in pricing indicate an increase in the inflation rate which in turn can devalue that country’s currency.

Factor 4 – Gross Domestic Product
This is the measurement for goods and services that were finished over a period of time. The GDP is broken down into 4 categories:

1. business spending
2. government spending
3. private consumption
4. total net exports
Factor 5 – Retail Sales

The measurement of sales recorded by retailers over a period of time is a reflection of either increased or decreased consumer spending, depending on whether sales are up or down for the comparative period a year ago. This indicator gives market participants an idea as to how strong or weak the economy is.

Factor 6 – Durable Goods
Goods that have a lifespan of three or more years are considered durable goods and they are measured in quantities that are ordered, shipped, or unfilled over a period of time. These are also an indicator of economic spending or the lack of it.

Factor 7 – Trade and Capital Flows
Currency values can be significantly impacted by monetary flows that result from certain interactions between countries. When imports exceed exports, there is a tendency for the currency value to decline. Increased investments in a country can lead to the opposite result.

Factor 8 – Macroeconomic and Geopolitical Events
Elections, financial crises, monetary policy changes, and wars can influence the biggest changes in the Forex market. These events can either change and/or lead to reshaping of a country’s economy.

Forex Trading Education – Trading the News

economics news
Harold Hsu asked:


News trading is a popular tactic that many Forex retail traders will try sometime in their trading careers. However, not many people are aware of what it takes to trade the news successfully. In this short article, I will discuss the implications of news trading for retail traders like you and me.

What is news trading?

News trading (also known as ‘trading the news’) involves the entering into trades just before, or immediately after the release of important economic news announcements. Traders ‘trade the news’ because market prices tend to move up on good news, and move down on bad news. Important economic news announcements typically affect currency prices directly.

Why is news trading so popular?

The biggest reason for the popularity of news trading is the potential for large price movements in a very short period of time. Prices can move up to 100 pips (or more) in under a minute just after certain news is released.

The large profit potential is what lures most traders to take part in news trading. You can make a lot of money in a very short period of time.

But! News trading is dangerous

Indeed, with the large profit potential comes the possibility of a large loss. News trading is dangerous because if you’re caught on the wrong side of a trade, you can lose money so quickly that you won’t even have enough time to manually close your trades. Even stop loss orders are unreliable during news trading because of the high probability of suffering from slippage.

Should you news trade?

Honesty, I wouldn’t recommend anyone to news trade unless they’re absolutely sure about what they’re doing. Successful news trading requires one to first have superior (faster) news feeds and second to have uncanny reaction speeds to quickly enter your trades the moment news is announced.

Any other form of news trading such as placing limit orders on either above or below the market price is simply guessing. And if you’re guessing, you won’t survive very long in the market.

My advice for most retail traders would be to avoid news trading altogether.



Forex News Trading Tip: How to Trade the Fomc

economics news
Benicio Brown asked:


The Federal Open Market Committee (FOMC) decision on interest rates is one of the most powerful market movers in the forex market and when the markets move traders trading the news have the opportunity to make money.

The FOMC sets the discount rate or federal funds rate and because interest rates are set higher to induce foreign investment and therefore fight inflation during times of prosperity and lower to increase spending during recessions they are one of the main factors influencing the strength of the dollar.

Economic indicators play a huge role in the forex trading especially for traders who approach the market through fundamental analysis and trade the news. The Federal Open Market Committee (FOMC) interest rate decision is one of the most influential indicators for the US dollar and you can be sure after the news is released there is going to be volatility in the markets and volatility is what traders thrive on.

I have heard many ‘traders’ say never to trade the news and especially the FOMC. Although the FOMC interest decision is a news event and can fall under the category of through fundamental analysis I am a technician and I believe that charts always price everything in. However I guarantee the market does not know what exactly the Feds comments and decision will be, therefore it is not priced in yet and this will cause the markets to react when they do find out. This is confirmed by the change in price after the decision and the continuation in the days following.

I have been trading the Fed for eight years now and yes I have been burnt in the past and that is exactly how I have come to learn how to trade it properly. The most common pattern to trade the Fed is the whip-saw. But do not be fearful of it, embrace it. Here is how it happens, first there is a large spike one direction (traders come in and follow that direction)followed by a large spike in the opposite direction (those same traders now sell their first position at a loss and reverse their position – this is when I take a position in the direction of the original move)followed by an extended move back in the direction of the original spike (all the emotional trades are left sick to their stomachs) and I am left holding a very nice position setting myself up to capture a larger than average market move.

If this pattern does not play out exactly as outlined I stand on the sidelines and do not trade at all. Because the markets are moving fast in the period following the FOMC interest rate decision I am watching a very short time frame, mainly the one and five minute charts.

Forex Trading – Using Economic Reports & News for Profit

economics news
Sacha Tarkovsky asked:


The internet has seen a massive growth in both the quantity of news and speed of delivery and many novice traders think this will help them win, however in most cases it simply helps them lose and lose quickly.

If you are looking at economic reports and news you need to consider one important fact first:

50 Years ago, 90% of FX traders lost and today the figure still remains the same – despite the advances in news forecasting and speed of delivery.

Most novices who watch news reports or trade off economic reports and fail miserably in their FOREX trading.

Why?

Firstly, they don’t realize that news is discounted by the market immediately and this is more true than ever today with any news available in any corner of the globe in a split second.

Secondly, if they see a so called expert talking about why a currency should fall it may sound convincing but that doesn’t mean the market will go the way they say.

Sure, it’s a convincing argument but these guys are giving opinions and are NOT traders.

An economist can always tell you why something has happened in hindsight, but is not so clever about telling you why something will happen.

Investors Determine Price Direction!

The fact is the news is not important in itself – it’s how investors perceive the news that’s important.

Humans make subjective judgements and all their opinions combined move the market price.

A Better Way To Trade

For most novice traders a better way of trading is to simply follow charts and use technical analysis.

As the marketing is a discounting mechanism you can simply assume all fundamentals will show up in the price instantly.

You can then simply follow the reality, rather than trying to second guess where currencies will go.

You will trade on the reality of price rather than predicting it.

Keeping Emotions Out of Trading

When you hear a convincing argument it’s easy to let your emotions get involved and trade with the losing majority.

Technical analysis allows you to set back from the market and see things without emotions and get a clearer perspective.

The fact that the news is bullish or bearish for a currency makes no difference on where it will go.

If you take major currency changes the fact is:

They tend to fall heavily when the fundamentals are most bullish and rally when they are at their most bearish.

Will Rodgers famously said:

“I only believe what I read in the papers”

He was joking of course but many FOREX traders do exactly this – believe what they read and hear and then lose.

Trying to trade off news stories for most traders is a complete waste of time and energy and sees them lose – don’t make the same mistake.



Forex Trading News Tips

economics news
Tyler Ziggler asked:


I wanted to talk to you about a few forex trading news tips that I’ve picked up in my time that have helped me stay ahead of the market and profit. This market is very large with trillions of dollars each day being traded. There is a lot to learn and there is even more information to keep informed on. News is a really great resource, even though it isn’t even filtered for the average forex trader. You’ve probably never seen any forex information on the news, but it wasn’t until I looked at things a little deeper, that I figured it out. The economic news will end up effecting the market, so obviously staying up on the economic news will keep you informed. I’m going to show you exactly what you need to know. All the currency in the world happens to be fiat. That means paper money is backed by nothing. Currency used to be backed up by some sort of precious metal like gold, but that isn’t so now. The currency in an economy has to follow supply and demand like any other product or service. When gold was the standard, you’d produce more goal to meet demand, but in a fiat system, the central bank is forced to guess what the demand is and they’re often wrong. Since they’re wrong most of the time, they end up causing variations in the price that traders can exploit. It is the economic news that comes out that is going to help you. The good thing about this type of news is that it is never breaking. All the reports are released at scheduled times. Watch for unemployment rates and GDP growth. If it shows good news, than it is good for the currency. If it is bad news, than it is bad for currency.

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