Basics of Forex Economic Indicators

This tutorial highlights some of the Forex economic indicators that will be able to guide the trader’s path in understanding financial and economic data.
Some indicators are very important for certain markets, e.g. Non-farm payroll releases in the US, and others may not be as important.
Guest post by Alexander Collins

Financial Data that Affects Currencies
Economic indicators are signals that provide guidance to the underlying data. This information is critical for traders to make buy and sell decisions. Financial economic indicators also describe the condition of the country’s economy and its impact on currencies.
Various governments and private financial organizations release economic data from time to time. This is part of public policy to keep everyone informed of changes to the country’s economy. These releases adhere to set schedules and traders keep watch for these pieces of data to make decisions.
The release of important indicators often results in increased trading volume and activity that in turn affects currency markets. Analysts will provide reams of information related to these indicators but traders do not need to have great theoretic knowledge to judge their importance.

Schedules of Indicators
Since the release dates and times of economic indicators are known in advance, traders generally track them closely. There are many online and offline media that will have this data instantly updated. Many trading software can automatically alert traders to the new data coming out. Also, many online brokers and dealers highlight them on their websites instantly.
Forex economic indicators represent several underlying economic data such as a country’s Gross Domestic Product (GDP), employment statistics such as non-farm payrolls, and other vital information such as Consumer Price Index that is an indicator of inflation in the country. Every indicator is useful in gauging the country’s economic pulse and how it will impact its currency in relation to others.
Traders can be overwhelmed by the barrage of economic data that is continuously being released by all the countries in the world. It is important to learn which of the economic indicators are critical important and which can be ignored. Some of the closely followed indicators that have a known effect on markets are the Non Farm Payroll data from the US, GDP figures and Central Banks’ Interest Rate changes.

Analyzing
Economic indicators dealing with inflation data such as CPI are important when related to certain countries but not to others. As the US dollar is a key driver in the Forex markets, any indicator that relates to the US or its Federal Reserve is watched alertly by traders. And known as the market movers in a big way, so it is good to anticipate them.
Forex economic indicators are universally available to traders but each trader may judge them in their own special way. There is always more than one opinion to analyze any of them. If traders feel positively about it, they will buy the underlying currency, or else sell it. This leads to major volatility in the market since traders want to make most of the opportunity generated by the release of an economic indicator.

Anticipating
Many of indicators are anticipated by market analysts and financial gurus. They try to predict these numbers based on their study of the economy. Many traders follow these predictions. When a released is quite different from the anticipated figure then it can cause quite a bit of volatility. Traders try to come to grips with the changed situation and assess their own exposure to the Forex market.

Example
For example, let’s say the prediction was that Non-Farm Payrolls would register a net gain of 10,000 jobs. Traders tend to position themselves in the market for this outcome. However, if the actual data came out as net loss of 25,000 jobs, there would be a wave of shock in the trading community. Such unexpected releases are common. Traders who were exposed to the market would immediately wish to liquidate their positions. This causes a run on the short side for the US dollar, with the exchange rate literally falling to the floor rapidly.
Some of the surprises in Forex economic indicators are related to revisions in data posted earlier. Governments and other organizations frequently revise older data based on any new information they receive. This impacts the current economic indicators, so traders are advised to look at these older revisions to understand the causes for the unexpected changes.
Economic indicators are a very big help for traders to develop their trading strategies. Traders must be aware of the schedule of the releases of financial data as these will have an effect on their already open positions. Traders have to follow Forex economic indicators especially for the countries whose currencies they regularly trade to gauge the outlooks of their respective economies.
This guest post is submitted by Alexander Collins, a forex software developer and trader. To compliment your reading, he offers to download free tools for MT4 at http://pipburner.com/free-forex-trading-tools/. For example, you will find there FX Pulse – trend detecting and news reading indicator.

Four Important Trading Skills You Need In Online Forex Trading.

Even if there are many important things you will learn from a forex school, there are still many essential skills that you may not get from your forex education. This is not to denigrate the value of formal education in currency trading, but rather to stress the limits of this training.
When you are actually trading with real money, there are many practical skills that you will need in order to avoid losing all your trading capital. Of course, there may be opportunities for you to learn some of these skills if the school offers mentorship programs or supervised trading opportunities. Here is a short overview of some of these skills.

1. Risk management. Every time you open a trade, there is always a chance that it will go against you and you will lose your money. Because of this, you will have to develop risk management skills that will help you to deal with the risk so that you’ll be able to navigate it successfully. One example of managing risk is to limit the amount of money you will risk per trade to a certain percentage of your trading capital. This will limit the amount of your losses in case you make unsuccessful trades. Of course this does not prevent you from increasing the amount ventured on your trades in case you feel the market is in your favor.
2. Developing a trading mindset rather than a gambling mindset. One of the worst things that you can do as a trader is to let your trade run rather than closing it out when it begins to go against you. A trader would accept that a trade is unsuccessful and accept their loss while a gambler would let the trade continue to run in the hope that it will eventually reverse itself in the trader’s favor.
3. Learning patience. It takes time to learn how to trade successfully and the trader should accept this rather than believe that after only a few courses, they will be successful at once. Apart from the lessons they will learn from the Forex school, they will also have to spend hours of practice making paper trades before they go and make actual money trades. It is said that it takes 10,000 hours to become proficient at something, and you will have to put in the time required to develop into a successful trader since it will not happen overnight.
4. Taking the long term view. Most beginning traders mistakenly believe the hype that the currency market is a place where you can make a fortune virtually overnight. Any good forex school will inculcate in their students the basic lesson that it takes time to make money. Attempting to make a big amount of money at once in the markets can only end in disaster unless you’re really lucky. Keep in mind that the only way to earn substantial profits from the forex markets is to trade using leverage, but this also greatly increases the amount of money you can lose.

The Process of Online Forex Trading Successfully

The primary reason most Forex traders fail is that they ignore the process.
In today’s world of quick-fix solutions, drive-thru menus, and expedient transportation, we want everything NOW. In our “convenient culture” we have come to expect results right away, putting aside the basic principles of online forex trading. “I’ll have a Big Mac, biggy-sized, with 10 milkshakes, and a vanilla latte!” Instantaneously, our ears hear the delightful words “Coming right up!”

When you ask for Online Forex Trading success, do not expect a “coming right up!” response. Online Forex Trading is not a get-rich-quick method. If you approach it as one, you will almost inevitably get-poor-quick. Forex Trading involves work, it requires a process. Let us view The Process of Forex Trading together.
Prepare 
Process is defined as: “A series of actions or steps taken to achieve an end.” The first step in the process of becoming successful at Online Forex Trading is to prepare. The preparation I am referring to is financial preparation, having the financial security to invest money that you can afford to lose.

Do not invest money that you can not afford to lose. Do not invest your last $2,000 in hopes of acquiring some much-needed cash for the bills next month. If you trade with funds that you can not afford to lose, the emotional pressure of trading will become so immense and intense that the likelihood of you losing your funds increases exponentially.

Risking you and your family’s financial welfare is never a wise decision. If you are currently not in the financial position to participate in Forex Trading, establish a goal to be financially secure by this time next year. Therefore, you can be confident in your future investing and you will value that investment substantially more than you would if you had not intently and purposefully worked and planned for it.
Without the foundation of financial security, your “wealth house” is exceedingly vulnerable to the storms of the Forex market.

Plan
Winston Churchill said it best; “He who fails to plan is planning to fail”. Having a trading plan is critical to anyone desiring success in Forex trading. Without a plan, any money you do succeed at acquiring, you can expect to succeed at losing very quickly.

Your trading plan consists of your trading vision, goals, and strategy (strategy being your parameters and plans on meeting your goals to accomplish your vision). It is critical to have these three essentials in your Forex trading plan. Your vision will keep you going, even when you fail miserably. Your goals will let you know that you are, or are not, making progress in regards to your vision. The Forex strategy is what you execute to actually see the trading results.
If you exclude any of these three essentials, your plan is ineffectual. A vision without a strategy is a fantasy. A goal without without a vision is insanity (similar to the Fed’s current unlimited Quantitative Easing).

Perfect
Now it is time to trade! Step one in trading: open a demo account. “Demo!? I want live!” Be patient my friend, this is a process!
It is now time to perfect your plan with demo trading. Demo trading can often be viewed as a toy for amateurs, but it is actually a wonderful Forex trading tool for those serious about developing into successful Forex traders.

In this stage of the process you will realize the faults with your plan and tweak them. You can try different plans and compare results. This stage of demo trading may last for many months, if you are not profitable trading with a demo account, chances are low that you will be profitable over the long-term trading a live account.

Perform
Now it is time to trade live. Your long awaited day has arrived. It would be wise to start with a smaller sized account and progress accordingly. You are now consistently trading your “perfected” strategy with discipline. Never feel obligated to enter a trade, but when you do, enter within the boundaries of your Forex trading plan.
One of the most difficult exploits of traders is trading detached from emotions. This is one reason why trading a demo account is so critical. By trading a demo account, you can train yourself to not be ruled by your emotions.
Investors of all kinds are constantly exposed to emotions as they trade, day traders especially. Emotions are good and obviously understandable when it comes to money, but letting them rule your Forex trading is a very dangerous position to be in. You have a choice to make: let your trades be governed by your Forex trading plan or let your trades be governed by fear, greed, and other emotions.
As you perform and execute your trading plan on a live account, you will inevitably find faults. If you notice your plan has stopped succeeding, don’t panic, it’s okay. You can always back up a step to “perfect” your plan further. Consistent, strict adherence to your trading plan ought to always be present in your Forex trading. On the other hand, flexibility is also an essential, understanding that the market is ever-changing.

Prosper
Being the largest market in the world, the Forex market contains endless opportunities for creating wealth. You are now part of the remnant of profitable Forex traders. As Forex trading functions as a stream of income for you and your family, you are now faced with more choices. Should I add funds to my account? Start a new account? Diversify? Save all the profit? The opportunities are endless, the hard work has paid off, and the price of the process was worth it.
Forex trading is not a sophisticated lottery mechanism nor a get-rich-quick scheme. Please do not let greed lead you into skipping steps in the Forex trading process. Good things are worth waiting for. Persevere through the process. If your Forex trading journey has been disappointing so far, you are not alone. Get your head up, start the process from step one and do it the right way. Let’s make 2013 a year where we follow the process, positioning ourselves for long-term wealth creation.