Points of Caution When Trading the News in the Forex Markets

Nov 22, 2012 -

Points of Caution When Trading the News in the Forex Markets

The forex markets are a great place to make your money work harder for you by getting great profits. At the same time, those who do not know how to play the forex markets can end up losing large sums of money if they are not careful about how the funds are invested. Aspects such as risk management, ensuring proper lot sizes and implementation of stop loss methods are important in order to be able to practice forex trading judiciously.

Trading in the Forex markets with Information

There are essentially two ways in which people perform analysis to be able to predict the future trends in the forex markets. These are methods by which risk levels can be reduced but they can never be eliminated completely. The markets ate unpredictable and there is no one who can predict the direction or extent of the movement with complete certainty. However, the risk can be reduced by making sure that technical or fundamental analysis has been done well before taking the decision.

Technical analysis for forex trading is carried out by sophisticated software these days. However, one does need to understand the various metrics that are used and plotted in order to understand them. Technical analysis uses past data for currencies and currency pairs in order to predict the future course of action. This kind of analysis can help define trading ranges and key levels too.
Fundamental analysis is more basic in nature but it requires a keen understanding of economics, world politics and the manner in which each of these aspects affect the currencies of the markets. The manner in which some events affect one currency can be very different from the way in which another currency behaves. This is because the volatility and sensitivity of each currency is different.
Trading News in the Forex Markets

Trading news in the forex markets is possible only when you have a keen understanding of fundamental analysis. This is not something that you can learn through a book or a trading course completely. While some amount of theory will help you understand the various factors that can affect currencies, you will still need to do a thorough study of the historical background of the currency and the currency pair you want to invest in. This is the only way in which you will be able to grasp relevant news and be able to decipher it in the right way.
When you trade with news in the forex markets, you need to remember that the timing of the changes, the rate at which the news affect the currency and the extent to which it does will differ. The best way to asses this is to get a feel of the market expectation and look at the deviation from the expectation when the news or reports do come out. The higher the deviation, the quicker and sharper the movement of the forex currency will be. 
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