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.

Top 5 Characteristics of a Successful Online Forex Trader

Not anybody can be a Online Forex trader. Trading occasionally, as a side income or professionally requires certain skills and characteristics.
Are you up for it? Here are 5 critical traits that any trader needs.

1. Seeing the big picture: Are you able to separate the small details from the bigger picture? This is critical in two aspects. First, separating the current movements from the bigger trend. The second aspect relates to money management: being able to separate your current trade from the situation in your account and the bigger plan.
2. Patience: Too many traders lack the patience to educate themselves before jumping into a trade, or don’t wait for a really good opportunity, as Andriy mentions. Others don’t wait long enough for their trade to run its course. Or, upon meeting success, they have the patience to continue trading in the same position sizes, and quickly double the positions, hoping to win more but actually burning their account fast.
3. Being able to adapt: Market conditions change all the time, and a good trader needs to be able to adapt. Your trading system cannot work well forever. Changes in patterns occur all the time, and you’ll need to tweak the system, if not completely change it. Being able to adapt also applies to fundamental analysis: strong currencies may hit the wall when the tide turns against their respective economy. A weak currency can help a country’s economy recover over time.
4. Cautiousness: When uncertainty is high in the markets, a good trader will be extra careful when taking risks. This means focusing on more predictable currencies, lowering position sizes when necessary or even taking a break from the markets. Winning in forex trading isn’t limited to making winning trades, but also minimizing losing ones.
5. Identifying your weaknesses: If you are able to be fully aware of your weaknesses, you are half the way to solving your problems. All the important traits mentioned above will be closer to reach if you can see when you are too far from them and acknowledge them. Your basic character will not change, but you’ll still adapt better to changing conditions and you’ll be able to stay a bit more patient than usual.

What traits are important in your opinion? Can you identify your strengths and your weaknesses?

The Hiden Truth About Relative Strength Index(RSI): Online Forex Trading.

Relative Strength Index, or RSI, is similar to the stochastic in that it identifies overbought and oversold conditions in the market. It is also scaled from 0 to 100. Typically, readings below 30 indicate oversold, while readings over 70 indicate overbought.

How to Trade Using RSI

RSI can be used just like the stochastic. We can use it to pick potential tops and bottoms depending on whether the market is overbought or oversold.
Below is a 4-hour chart of EUR/USD.

EUR/USD had been dropping the week, falling about 400 pips over the course of two weeks.


On June 7, it was already trading below the 1.2000 handle. However, RSI dropped below 30, signalling that there might be no more sellers left in the market and that the move could be over. Price then reversed and headed back up over the next couple of weeks.

Determining the Trend using RSI

RSI is a very popular tool because it can also be used to confirm trend formations. If you think a trend is forming, take a quick look at the RSI and look at whether it is above or below 50.
If you are looking at a possible uptrend, then make sure the RSI is above 50. If you are looking at a possible downtrend, then make sure the RSI is below 50.

In the beginning of the chart above, we can see that a possible downtrend was forming. To avoid fake outs, we can wait for RSI to cross below 50 to confirm our trend. Sure enough, as RSI passes below 50, it is a good confirmation that a downtrend has actually formed. 

Bollinger Bands As Online Forex Best Scalping Indicator.

For better understanding am going to compare trading to building a house. You wouldn’t use a hammer on a screw, right? Nor would you use a buzz saw to drive in nails. There’s a proper tool for each situation.
Just like in trading, some trading tools and indicators are best used in particular environments or situations. So, the more tools you have, the better you can adapt to the ever changing market environment.
Or if you want to focus on a few specific trading environments or tools, that’s cool too. It’s good to have a specialist when installing your electricity or plumbing in a house, just like it’s cool to be a Bollinger Band.

There are a million different ways to grab some pips! and Bollinger Bands is one of the best especially on scalping.
Bollinger Bands, a chart indicator developed by John Bollinger, are used to measure a market’s volatility.
Basically, this little tool tells us whether the market is quiet or whether the market is LOUD! When the market is quiet, the bands contract and when the market is LOUD, the bands expand.
Notice on the chart below that when price is quiet, the bands are close together. When price moves up, the bands spread apart.

   
That’s all there is to it. Yes, I could go on and bore you by going into the history of the Bollinger Band, how it is calculated, the mathematical formulas behind it, and so on and so forth, but I really didn’t feel like typing it all out.
In all honesty, you don’t need to know any of that junk. I think it’s more important that I show you some ways you can apply the Bollinger Bands to your trading.
Note: If you really want to learn about the calculations of a Bollinger Band, then you can go to www.bollingerbands.com.

The Bollinger Bounce

One thing you should know about Bollinger Bands is that price tends to return to the middle of the bands. That is the whole idea behind the Bollinger bounce. By looking at the chart below, can you tell us where the price might go next?

If you said down, then you are correct! As you can see, the price settled back down towards the middle area of the bands.

What you just saw was a classic Bollinger Bounce. The reason these bounces occur is because Bollinger bands act like dynamic support and resistance levels.
The longer the time frame you are in, the stronger these bands tend to be. Many traders have developed systems that thrive on these bounces and this strategy is best used when the market is ranging and there is no clear trend.
Now let’s look at a way to use Bollinger Bands when the market does trend.

Bollinger Squeeze

The Bollinger Squeeze is pretty self-explanatory. When the bands squeeze together, it usually means that a breakout is getting ready to happen.
If the candles start to break out above the top band, then the move will usually continue to go up. If the candles start to break out below the lower band, then price will usually continue to go down.

Looking at the chart above, you can see the bands squeezing together. The price has just started to break out of the top band. Based on this information, where do you think the price will go?

If you said up, you are correct again!
This is how a typical Bollinger Squeeze works.
This strategy is designed for you to catch a move as early as possible. Setups like these don’t occur every day, but you can probably spot them a few times a week if you are looking at a 15-minute chart.
There are many other things you can do with Bollinger Bands, but these are the 2 most common strategies associated with them.

Advancing online forex trading in Nigeria

I can vividly recount the advent of online forex trading in Nigeria. If I am that correct, I can date it back to 2006/2007. Laudable idea! Like any new business, Nigerians took to it en masse. But regrettably, it was a rush in, rush out thing.

The bane actually was lack of technical, experienced personnel to impart knowledge, direct and mentor trainee traders. I could recall a trainee of mine whom without a month experience opened a training centre on forex trading. He has crashed out permanently now.

Forex trading is lucrative but it requires sound knowledge and discipline. I am taking you through this because I have a vision to really impart knowledge to the populace as a contribution to self-empowerment programme and self-employment as well.

But what really brought about this article is that when you decide to empower people, you directly or indirectly empower yourself. The feedback is one of this. One of my trainees over the weekend was on a website. A site I had shown them for fundamental and technical analysis and also economic snippets that affect forex market. He went under the education link and called me to alert me about a forex expo called Lagos Forex Expo and Conference, scheduled for the later part of this year. The first of its kind in Nigeria in the commercial and financial hub of Lagos. He pressed on me that he would like me to present a paper there as he sees my efforts in advancing the course of forex trading in Nigeria.

I went to the site and looked up what the expo will have for traders. But in the process, what struck me is the statistics of traders given there, which I guess the organisers must have done some serious homework to lay to that claim. It says there are over 300,000 active traders in Nigeria. That is a staggering figure to my amazement despite the hues and cries about online forex trading. With Nigerians, I know the geometric progression of this figure will soon be bloated. I also smiled to myself that I have been part of that contribution in terms of the response this column has generated since its debut.

Secondly, I read that the Securities and Exchange Commission is giving a backing. That will put a paid stamp to doubtful minds about the authenticity of forex trading in Nigeria and I look forward in due time for foreign brokers to give more recognition to us here in this part of the world, once our regulatory authorities come up with rules and guidelines. The influx of brokers will be better for our economy and will provide more jobs and opportunities.

Even though I do not hold the brief for the upcoming Lagos Forex Expo organisers, as a trader/trainer/market analyst and signal provider, I know it will do a lot of good to this profession. The line-up of invitees will definitely shore up the image of the career as it will bring together traders, trainers, agents, brokers, investors, financial institutions, government agencies and many others. The benefits will really be tapped into by a lot of Nigerians. It will definitely be a good turn around. I wish the organisers well and also congratulate those in this business/career for a ground breaking event.

Market analysis for October 7, 2013 (as of the time of finishing this article. Entries are at trader’s discretion and money management is advised). Analysis discrepancies may result due to forecast time and economic news.