Investment, Stock News

Forex News Trading Tip: How to Trade the Fomc

The Federal Open Market Committee (FOMC) decision on interest rates is one of the most powerful market movers in the forex market and when the markets move traders trading the news have the opportunity to make money.

The FOMC sets the discount rate or federal funds rate and because interest rates are set higher to induce foreign investment and therefore fight inflation during times of prosperity and lower to increase spending during recessions they are one of the main factors influencing the strength of the dollar.

Economic indicators play a huge role in the forex trading especially for traders who approach the market through fundamental analysis and trade the news. The Federal Open Market Committee (FOMC) interest rate decision is one of the most influential indicators for the US dollar and you can be sure after the news is released there is going to be volatility in the markets and volatility is what traders thrive on.

I have heard many ‘traders’ say never to trade the news and especially the FOMC. Although the FOMC interest decision is a news event and can fall under the category of through fundamental analysis I am a technician and I believe that charts always price everything in. However I guarantee the market does not know what exactly the Feds comments and decision will be, therefore it is not priced in yet and this will cause the markets to react when they do find out. This is confirmed by the change in price after the decision and the continuation in the days following.

I have been trading the Fed for eight years now and yes I have been burnt in the past and that is exactly how I have come to learn how to trade it properly. The most common pattern to trade the Fed is the whip-saw. But do not be fearful of it, embrace it. Here is how it happens, first there is a large spike one direction (traders come in and follow that direction)followed by a large spike in the opposite direction (those same traders now sell their first position at a loss and reverse their position – this is when I take a position in the direction of the original move)followed by an extended move back in the direction of the original spike (all the emotional trades are left sick to their stomachs) and I am left holding a very nice position setting myself up to capture a larger than average market move.

If this pattern does not play out exactly as outlined I stand on the sidelines and do not trade at all. Because the markets are moving fast in the period following the FOMC interest rate decision I am watching a very short time frame, mainly the one and five minute charts.

Forex Trading News Tips

I wanted to talk to you about a few forex trading news tips that I’ve picked up in my time that have helped me stay ahead of the market and profit. This market is very large with trillions of dollars each day being traded. There is a lot to learn and there is even more information to keep informed on. News is a really great resource, even though it isn’t even filtered for the average forex trader. You’ve probably never seen any forex information on the news, but it wasn’t until I looked at things a little deeper, that I figured it out. The economic news will end up effecting the market, so obviously staying up on the economic news will keep you informed. I’m going to show you exactly what you need to know.

All the currency in the world happens to be fiat. That means paper money is backed by nothing. Currency used to be backed up by some sort of precious metal like gold, but that isn’t so now. The currency in an economy has to follow supply and demand like any other product or service. When gold was the standard, you’d produce more goal to meet demand, but in a fiat system, the central bank is forced to guess what the demand is and they’re often wrong. Since they’re wrong most of the time, they end up causing variations in the price that traders can exploit.

It is the economic news that comes out that is going to help you. The good thing about this type of news is that it is never breaking. All the reports are released at scheduled times. Watch for unemployment rates and GDP growth. If it shows good news, than it is good for the currency. If it is bad news, than it is bad for currency.

Forex News – How Can it Effect Currency Trading?

Regardless of whether you are simply playing around in Forex or  doing a full-blown Forex trading situation, it is critical that you remain on top of the Forex news around the globe that could potentially effect your investments. As a matter of fact, some of the day traders around the globe say that following the news throughout the world can be somewhat addictive. With the globalization and decentralization of the news each and every day, it appears there is constantly something of interest that is happening.

Financial News

Just to give you a few examples that are interesting from recent Forex news stories that FX day traders have encountered. Forex currencies are always traded in a pairs type of situation, so stories typically refer to two different currencies. These forex news stories directly are correlated to finance and currency.

- A recent story that indicated that traders had just tipped to a net short position right on the same day that the British pound increased to a 200 plus point rally.

- Forex trader carefully monitors the U.S. housing slump, trying to estimate the market for the mortgage futures.

- When the United States federal reserve made it’s latest rate cut, one Forex news service indicated that the overall expectations for the U.S. Dollar were “falling like a rock”.

- Fears of a recession within the United States might drive the
US dollar even lower than it already it is. (In Forex tradig, the reality that the dollar falls is not thought of as a negative, provided that the trader leverages the fall when making a trade for higher priced, higher value currencies around the world).

Political News

Financial and currency news are not just the only stories of news of interests to Forex traders as well as investors. Forex traders also have a lot of interest in political news that may have an impact on different countries currencies.

- Events that are tragic such as a political leader getting assassinated can effect the currency futures in the nation where the events happen and can also have a trickle down effect to the surrounding areas; for instance, the assassination of Benazir Bhutto in Pakistan.

- Disasters of the natural kind, such as a hurricane or typhoon or even an earthquake has the capability of consuming a great deal of a nations resources. Hence, Forex traders watch news of these types of natural disasters.

- Political events, such as the U.S. presidential election cycle has substantial consequences on the valuation of currency; hence, Forex news incorporates updates on presidential candidates, general elections, primary elections.