If you trade currencies than you should be aware of the importance of the economic data releases. As a forex day trader, you should factor in the economic report releases into your trading strategies.
Now if you use range trading as your primary day trading strategy than you must stay out of the currency market when a very market moving report such as the Nonfarm Payrolls (NFP) is released. However, if you are a breakout trader than you would be looking for the day when an important economic report is released to drive some sizeable price action.
Over the past few years, automated trading has become highly popular among the traders. Automated trading takes the pain out of trading. Yeah, this is true. With a good automated trading system you don’t need to sit glued in front of your computer all the time. However, even if you use an automated trading system, you should know some fundamental analysis and try to put your system off at those times when an important economic report is released. This can have a huge impact on the performance of your automated trading system.
There are two types of trader; Fundamental traders and technical traders. If you are a fundamental trader than these economic report release are an important part of your trading strategy. Now, you must be aware of the fact that over 90% of the currency transactions that take place in the global currency markets are US Dollar related. US Dollar can be either the base currency or the counter currency.
Now, you must know this fact that not all economic releases are created equal. Some economic releases may have a significant and lasting impact on the currency markets while others may have no effect.
So what economic report releases are the most market moving? Since, US Dollar is the most important currency in the global economy right now, the release of US economic reports are the most market moving. The most market moving right now is the Nonfarm Payrolls (NFP) report. This report gives the unemployment rate in the US economy. Unemployment rate has become very important since the start of the recession in the US economy. As you must be aware, right now the US economy is suffering with the highest unemployment rate in its history. So watch out for the release of NFP report.
So how does the market reacts when the NFP report is released every month? The initial reaction of the market is knee jerk. In the first 10-20 minutes the market, compares the actual report with what was being expected by the market. If there is no divergence, the market settles down after that time. However, if there is a surprise and the actual report is different from what has been expected, the market may start moving in a new direction so watch out for this important monthly report.
The second most important market moving report is the FOMC Meeting minutes release. FOMC ( Federal Open Market Committee) Meeting is the carding forum where the FED decides whether to increase or decrease the interest rate in the US economy. This is an important meeting and the whole market follows what is happening and what is expected days before the FOMC Meeting takes place.
Now, the market is always watching. Analysts are following what is happening behind the scenes in the FED that might result in a interest rate increase or decrease. What the market does not like is a surprise or the unexpected. So you need to be aware of the economic release calender if you are a day trader!
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