As a forex trader you should use a combination of trading strategies in developing your forex system. This will hedge your risk and maximize return. There are a few strategies based on fundamental analysis and others are based on technical analysis. You can use a fundamental trading strategy that is based on big macroeconomic events for swing trading that may last from a few weeks to a few months.
Short term forex traders and day traders try to focus only the economic news release of the week and how it will impact their day trading. This works well for many traders. Learn forex nitty gritty, a method based on only 20 minutes trading a day.
Fundamental trading strategy based on macroeconomic events can make few thousand pips for you in a matter of a few weeks or months. You should not lose sight of the big macroeconomic events that may be bubbling in the economy or for that matter in world. Large scale macroeconomic events have the potential and ability of moving the forex markets big time for a long time.
The impact of big macroeconomic events has the ability and potential to change the fundamental perception about a currency not only for a few days but for a long time. Events such as natural disaster, political uncertainty, wars and international meetings have widespread physical and psychological impact on forex 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.
You may ask what type of big events affects the currency markets in the long term. Important world summits, major central bank meetings, potential changes to the currency regimes, possible default by large countries, G-8 Finance Minister meetings, Presidential and Parliamentary elections in big countries, possible wars, FED Chairman semiannual testimony to the Congress. These are only a few examples of big 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 tend to leave a long lasting impact on the currency markets. Combined these eight countries account for the two third of the world GDP. So whatever decisions that are taken during these G-8 meetings usually leave a short term as well as a long term impact on the global forex markets.
For example, the US Dollar collapsed after the September 2003, G-8 Finance Minister meeting in which the finance ministers wanted to see more flexibility in the exchange rates of the member countries. This meeting was also important as the US Trade Deficit was ballooning and going out of control at that time.
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 short term impact and the event itself have the ability to change the overall market sentiments.
