FX Trading on Current Affairs
Another strategy often used by forex traders, and one that works particularly well for traders with a vague understanding of economics and the principles of the market is trading on current affairs. Trading on current affairs relies on the economic and political announcements and indicators that are released in a perpetual cycle to determine whether certain currencies might move up or down. Closely aligned with momentum trading, it might be argued that whereas momentum trading looks to price data to establish wider trends, trading on current affairs looks at the external factors that contribute to why markets behave in the way they do. Trading on current affairs requires a keen eye for interpreting data, but when combined with further technical analysis can be a particularly effective technique.
What You’re Looking For
When it comes to trading on current affairs, you’re looking for potential triggers that will spark a market movement in one direction or the other, or at least have an effect on an existing trend. This can be anything from the setting of interest rates in Japan to quantitative easing in the eurozone, and it’s imperative that you keep abreast of as many different current economic issues as you can to build up the fullest picture before you invest. Look out for geopolitical goings on that might undermine a particular economy, and indeed economic indicators from around the world that might come to bear on one or more of your currency positions. Digest as much news as possible from both mainstream and financial media, and ask how it impacts on your markets and positions.
Which Trader Does This Suit?
For starters, anyone with an interest in news and politics should consider this a potentially viable avenue. Trading on current affairs naturally relies strongly on current affairs to both happen, and for you to be aware of them when they do. Remember that all the news you’re trading is in the public domain, and other traders might just as quickly have access to the information you’re using to trade. For that reason, you must also be organised, and prepared to act as soon as information is released to squeeze the most value from each of your trades.
Strengths and Weaknesses
Trading on current affairs gives you the advantage of being able to take part in the forex markets at their most volatile moments. This is where serious money can be made and lost, and for the dynamic trader that goes the right way, the rewards are definitely there. However, you need to be prepared to act quickly in order to avoid missing the boat, and the advent of price freezes across certain brokers’ trading platforms does nothing to help current affairs traders. This strategy requires a certain ongoing time commitment to read and interpret news outcomes, so you need to be prepared to get behind this strategy if you choose to use it in your trading.
Using current affairs as the basis for generating your trading decisions is a good technique that is made all the more valuable when things go right. By getting on at the early stages of a trend, identified by breaking news, you can profit to the greatest extent from your news and current affairs research.