Trading economic data releases.

Forex, just like any financial market, is effected by a plethora of factors. Among many influences is the economic data. That data is available to the public during economic news releases.

Economic data is collected and distributed by numerous sources. Most of the relevant numbers come from various branches of Federal Government and cover area of their respective responsibilities. Some information is provided by private or academic sector, but government is a primary source of this information.
Examples of the of economic data are:

-personal income,

-personal spending,

-consumer confidence,

-unemployment claims,

-home sales,

-nonfarm payroll.
Perhaps the most important and influential of them all is FED interest rate decision, announced every 6 weeks after FED meeting. Schedule for all these announcements is set well in advance and is available on all Forex brokers’ websites. It’s usually displayed as “Economic calendar” or some minor variation of this name.Why are these events important? The numbers provide a window into economic health of the nation, and are used by people to predict the future course of economy.

Strength or weakness of currency , in some measure, depends on a state of economy. That’s why Forex markets react to economic news releases.When numbers are published, the reaction can be very very strong. Large moves of 100 pips or more can happen in matter of minutes. That’s what draws traders to these events, they look like easy money. Reality can be, and often is, dramatically different.Even if a person is right about the numbers, the market’s reaction to the news is completely another story and very often is opposite to what common wisdom dictates.

Especially beginners should avoid active trading around those times. By that I mean having some short term open positions or having pending orders so close to the current price, that they are likely to triggered upon data events. The market reaction can be both volatile and unpredictable and often it’s better to sit them out and see what happens. If there is a directional move, wait an hour or two, make sure the move continues and is for real. Should the the price action appear steady, AND is in line with your other analysis, you can always join in later.

Until you get a better idea of how the markets react, witness first hand fair number of these events. You can save yourself a lot of grief and money, by simply staying out and decide a little later on how to trade. Presumably with a cooler head.

Mike K.
www.fxmadness.com