There are several major events that have a tendency to move foreign currency markets. Not only can these events lead to short term periods of volatility, they can set longer term market trends. Some events such as the US Non Farm Payrolls release have a much greater potential to have an effect on market direction than others. Of note here is the US Non Farms Payroll release. This is released to the markets by the US bureau of Labour statistics on the third Friday of each month. The release is so keenly watched by traders because the figures tend to have an effect not just on the US dollar but global currency trends in general.
By having a basic awareness of these key events and how they can move markets, we can account for them when making trading decisions.
The timing of these releases can easily be found on many Forex websites. Look for a specific Forex event calendar to determine when these are scheduled to take place. Often these events will be categorised with an indication as to the effect that these are likely to have on a market when released.
There are three main approaches that can be taken to these events.
The first approach is to build in a suitable margin of safety to accommodate for any fundamental data due for release in our trading timeframe. This could involve widening stops on open trades so that they don’t get ‘stopped out’ by sudden market volatility on release. This can help prevent trades from being ‘stopped out’ if the figures released over or under shoot expectations. Alternatively you could do the opposite and actually ‘tighten’ your stop loss position to reduce your exposure should the market start moving in the opposite direction to your trade. This means that there is more chance of you getting stopped out of the trade but does allow you to minimise your loss.
The second approach is to actually try to ride any volatility which occurs from the event risk. This could involve jumping on short term trends or market moves and getting out of the trade before the market settles. This approach is fairly high risk but can be profitable if you call the directions and your exit correctly. With this type of strategy you don’t want to get caught up in the trade. It is simply a case of diving in and out of the market quickly.
The third method of dealing with fundamental event risk is to simply avoid it altogether! This is not always easy to do with the economic calendar seemingly full of releases. Many traders will simply choose to avoid event risk releases and will only trade when the market is quieter. There are times when gaps do naturally occur within the economic calendar. These ‘quiet’ times can provide a great opportunity to profit as the market is likely to be less volatile.
Having patience and waiting for news to be released can be frustrating at times but it is far less so than losing a trade simply for the sake of jumping in and ignoring risk. This is one of the key attributes that every trader needs to learn to consistently beat the markets.
Continue to improve your trading results with further Forex Education and learning.
Vernon Lees is Senior Technical Analyst for http://www.ForexTechnicalChartist.com which provides Technical Analysis and Resources for Forex Traders
Author: Vernon L Lees
Article Source: EzineArticles.com
Android apps
