As a forex trader, use a combination of trading strategies in developing your forex system. This will reduce your risk and maximize pips for you. There are a few trading strategies based on fundamental analysis and others are based on technical analysis. You can use a fundamental trading strategy that is based on keeping on top of the global events for swing trading that may last from a few weeks to a few months.
Day traders and small term forex traders try to focus on only the fundamental economic news release of the day or the week and how it will impact their trading. This works well for most of the traders and they are pleased with it. Learn forex nitty gritty, a trading method developed by Bill Poulos, a veteran trader and only needs 20 minutes a day.
You should not lose sight of the huge macroeconomic events that may be brewing in the economy or for that matter in world. Large scale macroeconomic events have the potential and ability of moving the currency markets huge time for many months or even years.
The impact of huge macroeconomic events have the potential to change the fundamental perception about a currency for months and even years what to talk of days. Events such as wars, political uncertainty, natural disaster and international meetings have widespread psychological and physical impact on the currency markets.
Therefore, by keeping on top of the global developments, understanding the underlying market sentiments before and after these global events and trying to anticipate them could be very profitable for you. At least it can help prevent significant losses in your currency trading.
What type of huge events affects the currency markets in the long term, you may question. G-8 Finance Minister meetings, Presidential and Parliamentary elections in huge countries, vital world summits, major central bank meetings, potential changes to the currency regimes, possible default by large countries, possible wars, FED Chairman semiannual testimony to the Congress. These are only a few examples of huge events that make the currency markets jittery and may have a long term impact.
For example, 2004 and 2008 US Presidential elections were hotly contested. Candidates had different stances on the growing budget deficit and how to deal with the recession engulfing the US economy. This resulted in the overall USD bearishness.
G-8 meetings also leave a long lasting impact on the currency markets. Collectively these eight countries account for the two third of the world GDP. So whatever decisions that are taken during these meetings usually leave a small term as well as a long term impact on the global currency markets.
For example, the US Dollar collapsed after the September 2003, G-8 meeting in which the finance ministers wanted to see more flexibility in the exchange rates. This meeting was also vital as the US Trade Deficit was ballooning and going out of control.
EUR/USD bore the burnt of the dollar depreciation. China and Japan intervened aggressively to stabilize their currencies. USD had already begun to sell off leading up to the meeting. The trend continued for many months after the meeting.
Therefore, the long term impact of these events is much more significant that the small term impact and the event itself have the ability to change the overall market sentiments.