Making money from forex trading requires knowing the basics of trading. A strong foundation in reading charts and trends is certainly required but to learn currency trading, however, a fundamental understanding of what news moves the market will help you immensely with timing market entry.
The forex market is heavily influenced by national and international news and current affairs. This especially relates to financial news but other major events can have an effect too. These may be expected or unexpected.
Unpredictable events such as earthquakes, hurricanes, and terrorist attacks have the possibility to affect currency values. Part of the package to learn currency trading is to be a defensive trader and to 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.
Similarly, financial reports in many countries are released almost daily. Announcements focusing on gross domestic product, inflation, and interest rates are generally predictable and have an impact on currency prices..
Try to avoid trading on rumors. You might see news reports or hear other traders speculating that an announcement will go one way or the other. Do not trade on the basis 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.
Do not forget 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 true for Americans because dollar news tends to dominate the forex alerts anyway. It is even truer 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 beginning to learn currency trading as a forex trader, it is important to keep in mind these aspects of fundamental analysis for the forex 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.
