Trading the foreign exchange market, Forex for short, can be done through a variety of channels including the simple yet powerful support and resistance levels, the mechanized combination of technical indicators, and the old school technique of trading price breaks from previous daily highs and lows. While these approaches vary in every way perceivable, they share the attribute of being affected by market reports
New reports flood the Forex markets on a daily basis. Everything from changes in credit rating of a particular country to increase in unemployment levels are reported for the public to see. The more important pieces of news information come in the form of GDP or gross domestic product of major economies as well as interest rate changes in major currencies, such as the US dollar and Japanese yen.
As an investor or trader, how exactly does these market reports affect your trading? Although you may have heard once or twice to disregard market noise and just focus on price action, knowing when an important news article will be released can give you an edge against other traders who blindly traverse the trillion dollar market.
To point out the magnitude of market reports in Forex, let’s take an example. Say you’re an avid trader of USD/JPY pair and you’re holding a long position due intraday. It will help to know if Bank of Japan meeting minutes or Federal Reserve policy changes are underway. This allows you to close the entire position or at least halve it to minimize risk or take out some profits before risk is injected into the market.
Day traders and scalpers can use these market reports to leverage their positions on an intraday basis. Long-term investors, on the other hand, can use the information as basis in identifying the price trends for months or years to come. Volatility-based traders can time their positions during press releases of important market reports to minimize capital exposure while maximizing potential profits.
Knowing when market reports are to be released is only half of the story, though. You must know how to react to their underlying implications. Any surprises in the report can shake the price substantially, and not knowing how to react to it properly can lead to substantial losses. To effectively wield the power of market reports into your trading plan, keep in mind that the actual numbers are not indicative of where the price goes from thereon.
Most of the time, the report has already been priced in by traders who are much more experienced and skilled than you are. Any attempt to trade raw market data can become disastrous to your account. A good way to trade news reports is to wait for price action to mellow down and trade on the pullback or whatever the previous bars are indicating.
Find a reliable source for real-time Forex daily market review online and start practicing your newly found strategy. Trading market reports require due diligence, research, and flexibility in reacting to unpredictable numbers.
