If you want to make money from the forex market then you will need to know currency trading basics. You may have a good mathematical understanding of trends and charts but to learn currency trading it is also important to understand the foundation on which the currency markets are based. If you do not, you could enter a trade at exactly the wrong time.
The currency exchange market movement is significantly influenced by national and international news events. This is especially true of financial reports but is also true of major news events. Unanticipated or surprise events have great impact.
Catastrophic events such as earthquakes, hurricanes, and terrorist attacks have the potential to affect currency values. Since they are unpredictable there is little that you can do other than to play defense and use a stop loss.
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 suffer 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.
Don’t speculate on trading rumors. The financial news commentators and other traders may speculate on a pending announcement but it would be foolish to enter a trade before the facts are known. Why?….because the speculation could be wrong and the market may have already incorporated this knowledge into the current price (in which case there won’t be much of a gain even though you are right).
Keep in mind that you are trading two currencies (pair) and not just one. Trading your home country’s currency as part of the pair usually means that the information is readily available. The information from the other component of the pair is usually a little less accessible (unless you are talking about the US dollar). If the second currency is a minor one then it may be significantly more difficult to come up with the information. To learn currency trading the lesson is that you may have to take extraordinary measures to get the information you need.
All traders (and especially novices) should remember these aspects of fundamental analysis of the currency markets. Closing your positions before any major announcements is probably a good practice for any trader. Overtime as you become more familiar with the nuances of the market you may develop a trading strategy that takes advantage of forex news but stick with the basics and play defense to preserve your trading capital.
