Just when you thought technical analysis alone is enough in dealing with currency pairs, think again. Awareness of current events is also crucial in deciding what currency pairs to trade.
It is essential that you should have an expanded awareness when you are trading the financial markets, whether be it stocks, forex, or cryptocurrencies. The internet gives us a lot of information and even a single tweet from someone famous in the financial world can move the markets.
Reading financial news regularly
Staying up to date with the latest news related to the currency you’re trading with can give you awareness of how national and global events might impact that currency, but where should you get your news?
With so many news sites on the Internet, it is crucial that you get your information from legitimate sources. This can help you further assess your trade if you are going to buy or sell a certain currency.
Timing trades using an economic calendar
No matter how good your technical analysis is, however, it can be invalidated by an economic event or major news story.
This is why it is important to factor economic calendar data events into your analysis to save yourself from being stopped out in a trade.
In this example for the EUR/USD currency pair, we can see how the charts react to economic calendar data and news.
Aside from the economic calendar data that was presented by Investing.com, according to CNBC, the Dow Jones Industrial Average went up by 156 points.
Now observe how the price charts reacted after the actual data for the USD economic events are announced.
Interpreting economic calendar data
When attempting to decipher economic calendar data, you can either be a speculator or a reactor.
You become a speculator when you believe the values of the forecast will materialize before the actual results come out.
For this to play in your favor, you would need to study the technical movement of a price chart and determine where to take profits if ever the actual value that will be presented will contradict the forecast. Let’s use the USD/CHF currency pair as an example.
In the Calendar section of this chart, we can see that there is a medium level impact event for the CHF, which is the Employment Level, and it also forecasted an increase from the previous value.
You become a reactor if you manage to decide to buy (or sell) a currency pair once you immediately see the actual results come out from the economic calendar.
Going back to the USD/CHF currency pair, if you are playing as the reactor, a possible plan would be to either buy CHF if the actual value exceeded the previous value or sell CHF if the actual value did not meet the expectation of the forecasted value.
To conclude, when you’re trading any particular financial instrument, make sure to back up your technical analyses with the appropriate news sources and economic calendar events to increase your edge to win.