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By: Martin Bottomley
Trading foreign currencies necessarily requires certain study disciplines. These may include, but are not limited to, studying the trend and average true range, studying the support and resistance levels, studying trading volume etc.
Of all of the various studies that the trader will make on a daily basis, one of the most important, and yet often overlooked, areas of study is that of the daily economic calendar.
The purpose of this area of study is to understand which fiscal releases are scheduled and what, if any, impact these releases will have upon our proposed or actual trades.
To assist us with this study we need to understand that it is much of what is contained in these releases that actually drives the forex market - interest rate changes, employment/unemployment figures , retail price index, GDP, balance of payments, inflation etc.
Then we need to understand that as each piece of fundamental information is released the market participants will react to that new information. This will often cause the market prices to become very volatile.
Where many traders make a mistake with trying to understand the information to be released, is that they look too closely at the information itself.
A much more effective strategy is in trying to gauge is how the market participants will react to this new information. This is known as market sentiment.
All good economic calendars will give not only the time and nature of the release, but also the previous figures (where appropriate) and an indication of what figures the market is in general expecting this time.
The type of calendar mentioned above also has a facility to allow the study of specific commentary for each of the releases, which can be particularly helpful in trying to assess how strongly the market may be impacted by the release, and a simple star rating to signal the expected significance of each release.
Some of the economic releases may affect just one currency pair, whereas some of the releases will affect many pairs, and it is crucial for the trader to understand the inter-relationship, or lack thereof, between the different currency pairs.
If you are short term trading then the daily economic releases will undoubtedly impact your trading more than would be the case if you were position trading, but even position traders should remain aware of what is due to impact the market.
In short, whatever your daily trading routine may be, make sure that it includes an in depth study of a reliable economic calendar.
About the author:
Martin Bottomley is a full time professional forex trader, forex tutor, acknowledged author and co-developer of forex trading software including The Amazing Stealth Forex Trading system. Martin is also featured in the book "Converations with Forex Market Masters" by Dr Dariusz Swierk Phd. You will find more information at: http://www.stealthforex.com
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Monday, February 15, 2010
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