Further Tips on Making the Best Use of Economic Data

In the last post we looked at some hints for making sets of economic data work for you in Forex trading. Here are one or two further things to remember:

• Concentrate on the finer points of the data, rather than the headline figure of each set of data. For example, the PPI (Producer Price Index) measures changers in producer prices of different commodities. However, experienced traders will know not to pay so much attention to the food and energy components of the data set. This is because they are aware that these components are so volatile that they do not provide an accurate picture of economic conditions.


• Remember that economic indicators usually contain revisions to previous data sets. So although we said in the previous post that the importance of figures lies in the extent to which they fall outside market expectations, be aware that an unexpected rise could be the result of a downward revision to the previous month. So look at revions to older data before you use this as a basis for making a trade.


• Never forget that there are two sides to a trade in Forex trading. You always trade one currency against another. Therefore you must pay attention to the economic data from both of the countries whose currencies you are trading. Remember that not all countries are as efficient as the USA or Europe in releasing their economic information so you have to be careful about judging how much weight in the market the data from each country will carry. Always do your homework.

If this all seems difficult and complicated, don't forget Easy-Forex will give you plenty of help if you are trading with them, and you can also get help on many aspects of Forex trading at http://www.bizwrite.co.uk/Forex/forexindex.html

Tips on Using Economic Data in Forex Trading

In a previous post we underlined the importance of knowing exactly when each set of economic data is due in the country whose currency you are trading. Here are some other points you need to be aware of:

• Make sure you are clear which aspect of the country's economy is being revealed in the figures - e.g. which measure the growth of the economy (GDP), inflation(PPI, CPI), employment (non-farm payrolls) etc.
• Understand which economic indicators have the greatest potential to move markets.
• Be clear which economic issues are the most crucial for the country you are dealing with. For instance, if inflation is a more important issue than economic growth in that country, inflation figures will have more effect on the market than figures that show GDP.
• This point is very crucial. Remember that the numerical value of an indicator is not as important as the extent to which the figures have been anticipated by the market. The market expectations for all releases are posted on various sources on the Internet and you need to put these on your calendar along with the release dates.

In the next post we will look at further hints on using economic indicators. Remember that Easy-Forex has lots of very helpful information in this area for those who are trading with them, and go into much more detail than is possible here. Also don't forget the information available at http://www.bizwrite.co.uk/Forex/forexindex.html

Some More Indicators You Can Use in Forex Trading

Today we are looking at some further important economic indicators. These and the previous ones are indicators used in the USA - remember that you need to find out those used in other leading economies, depending on which currencies you are trading.

• Consumer Confidence Index (CCI). This is published on a monthly basis in the USA and is seen as one of the most accurate indicators of confidence. When consumers are more confident, and therefore spend more money, it is taken as a sign that the economy is in good shape with jobs on the increase.


• Changes in non-farm payrolls (NFP). This too is published on a monthly basis and is used to help government policy-makers to determine the current state of the economy and predict future levels of economic activity. It is a very big market mover.


• Trade Balance. This measures the difference between the value of goods and services that a country exports and those it imports. It is seen as an extremely big market mover.


• Housing starts. This tracks how many new single-family homes or other residential buildings were constructed in the course of the month. It is not a big market mover, but it is seen as an accurate predictor of trends in the economy.


• Employment Cost Index (ECI). This is produced on a quarterly basis and tracks movements in the costs of labor at all levels. It is quite an important market mover since it increasing wage pressures are thought to indicate increasing inflation.

Next time we will look at how these indicators should be used. You can learn a lot more about this if you are using the Easy-Forex trading platform, and a lot more about Forex generally by visiting http://www.bizwrite.co.uk/Forex/forexindex.co.uk

Some Important Indicators for Forex Trading

As we saw on Friday, economic indicators can be extremely important for Forex trading because they can enable you to judge the economic health of a country and thus how its currency will perform. But there are such huge numbers of economic indicators. How do you know which to pay most attention to?
Here are some of the major economic indicators:

• Gross Domestic Product (GDP). This consists of the sum of all goods and services produced within that country by either domestic or foreign companies. This enables you to assess the pace at which the country's economy is growing or shrinking and it's seen as the broadest indicator of economic output and growth. All countries will have one of these.


• Purchasing Manager's Index (PMI) In the USA, the Institute for Supply Management releases a monthly index of national manufacturing conditions. Other countries will have something similar.


• Producer Price Index (PPI) This is a measure of price changes in the manufacturing sector. The indexes most often used for economic analysis are those for finished goods, intermediate goods and crude goods.


• Consumer Price Index (CPI) The CPI is a measure of the average price level paid by urban consumers (80 percent of the population) for a fixed basket of goods and services. This is the most effective measure of inflation in a country and thus of the country's economic health.

In the next post we will look at another selection of economic indicators. This may seem like a lot to learn but Easy-Forex will really help you and give you lots of guidance in how to use these to ensure you make a profit in Forex trading. There is also information on various aspects of Forex trading at http://www.bizwrite.co.uk/Forex/forexindex.html

Fundamental Analysis - Economic Indicators

Obviously, economic indicators are not the ONLY factor in fundamental analysis. But the economic health of any country is reflected in its currency. So economic indicators are a very important way to measure the economic health of a country and therefore to understand the way the currency is going to go. So economic indicators are important for Forex trading.

Economic indicators fall into two groups: leading indicators and lagging indicators. Leading indicators are economic factors that change before the economy starts to follow a particular pattern or trend, so they can be used to predict changes in the economy. Lagging indicators follow changes, so they can be used as indicators of what is already going on.

Economic indicators basically consist of snippets of economic data published by various agencies of the government or private sector of any individual country. They are published on a regular basis - this could be monthly, quarterly, half-yearly or yearly.

What is important in Forex trading is to know when these indicators are due to be released. Keep a calendar on your desk with the dates marked for the publication of each set of data. Because currencies are traded in pairs, you will need to do this for at least two different countries. For instance, if you are interested in trading USD/JPY, you will need to track the indicators of both the USA and Japan. Currency movements are meaningless in themselves - what you need to know is the movements of any given currency AGAINST another currency.

In the next post we will look at examples of some of the most important economic indicators. You can also find out much more about this in the tutorial materials provided by Easy-Forex. And there is more to find out about Forex at http://www.bizwrite.co.uk/Forex/forexindex.html

Fundamentals of Forex Trading

If you have been involved in Forex trading for any length of time, you will know that there are two main ways of analyzing markets and predicting trends: Technical Analysis and Fundamental Analysis. We have spent quite a lot of time looking at Technical Analysis and the different types of charts you can use, but so far we haven't looked much at Fundamental Analysis. However, this doesn't mean it isn't important.

You have probably also picked up that Forex traders tend to be split into two main schools of thought: those who swear by technical analysis and those who give priority to fundamental analysis. However, the two are so different that it would be very foolish to ignore either of them - they both have their very distinctive contribution to make to the way you study the markets.

As you will know by now, technical analysis is a way of using historical price data, via the charts, to predict the future price of a currency pair. In actual fact, technical analysis tracks the PAST, it does not in itself predict the future. You have to learn the skills and abilities to interpret the data in order to decide what the charts tell you about future activities.

Fundamental analysis consists of the study of all the information about a particular country that could possibly have any bearing on the movements of that country's currency. This will include economic and inflation indicators, political events such as election results, government policies, or even climatic events such as tornadoes, floods or earthquakes. These are a very effective way to forecast economic conditions, though they are not necessarily predictors of exact market prices.

In the next few posts we will look in more detail at the different kinds of Fundamental Analysis and how they should be used. A lot more detail can be found in the tutorial materials that Easy-Forex provide. And there's more information about Forex trading in general at http://www.bizwrite.co.uk/Forex/forexindex.html

Make Sure You Win At Forex Trading

We said at a very early stage that when trading Forex you cannot expect never to have losing trades. NOBODY in Forex trading wins every time. What separates successful Forex traders from unsuccessful ones is that the successful ones have worked out ways of putting the odds in their favor.

If you trade with a 1:1 risk-reward ratio, after 100 trades you should theoretically break even (end up with the same amount of money in your account). In order to manage risk effectively, it is necessary to find high-probability trades that have a 1:1.5 or greater risk-reward ratio. Most advice is to go for a risk-reward ratio of 1:2 or more.

So supposing you are going for a 40-pip trade, you set your reward for 40 pips and your stop-loss order for 20 pips below the entry order. Suppose too you are trying out the 1:2 ratio, and you are only right 50% of the time (though you will probably do better than that). If you make 4 trades, two of them winning and two of them losing, you have made 80 pips and lost 40 pips (2 x 20 because you had a 20-pip stop-loss order).

The lesson is - ALWAYS calculate your risk-reward ratio BEFORE making a trade, and refuse potential trades unless the ratio is at least 1:1.5 or preferably 1:2 - that is, for every dollar risk there is a potential for 2 dollars gain.

Easy-Forex will teach you much more about managing risk. Keep an eye on http://www.bizwrite.co.uk/Forex/forexindex.co.uk for answers to more of your questions.