Any numbers of real-world forces
are at work in the forex market at any given moment - economic data, interest
rate decisions, and geopolitical events, to name just a few. And they all get
filtered through the market’s collective consciousness and translated into
price movements.
As currency traders, we’re
focused on trying to make money based on those price movements, but we’re not
alone. A whole raft of participants is active in the currency market, and
they’re all analyzing the same news and data, and drawing differing
conclusions. To add yet another dimension, they’re making trades based on those
conclusions, which is what ultimately moves currency prices.
Which brings us back to the
observation: if it’s not one thing, it’s another. The “other” in this case
boils down to how markets process information and there’s a lot of it. Your
aims are to avoid paralysis by analysis and to absorb and understand as much as
you can about what’s driving the market, all with the goal of making successful
currency trades.
The jumping-off point for our
discussion of market information has to be getting the market information in
the first place. Institutional traders have teams of economists, analysts, and
strategists providing them with up-to-the-minute observations and
interpretations. Does this give them an advantage? Not necessarily. In the big
picture, most of the information they’re getting is available to individual
traders, but you have to make the effort to find it, read it, and understand
it.
The art of boarding a moving train
Anyone who’s ever tried to jump
on a moving train knows you have to start running alongside it before you reach
out and try to grab hold. If you’re standing flat-footed, and you try to grab
on, you’re likely to get your arm ripped off. The forex market is no different,
and any trader who tries to jump in without first getting up to speed is asking
for trouble.
Getting up to speed in the forex
market means learning what the current themes are that are driving the market.
To do that, you’re going to need to know where to find market information and
how to interpret it.
But getting up to speed takes
time, so don’t be in a rush to start trading based on a few hours or days of
research. I recommend spending a month following the various currency pairs and
familiarizing yourself with what’s going on before you consider yourself up to
speed. Using a practice account at an online forex broker is a great way to get
up to speed. Over the course of a month, you‘ll be exposed to a full cycle of
economic data indicators and most market events, like central bank meetings,
which will give you a firsthand sense of how the market behaves and adjusts to
new information.
Part of the excitement of
currency trading is that there’s always something going on - a train is leaving
the station every few minutes. So don’t worry about missing the next train,
because there's always another one right behind it.
Taking the pulse of the market
As online currency trading has
grown in popularity in recent years, there’s been a proliferation of
currency-specific Web sites targeted at-individual traders. I can’t possibly
begin to review them all here, but you’d do well to start out with FXstreet.com , a comprehensive site featuring diverse sources of
market analysis, many from big-name institutional contributors, all for free.
When you're looking at forex
research from various information sources, be mindful of who is providing the
analysis. If you don’t know the identities or backgrounds of the analysts, you
may be reading the work of someone with just a few months or a year of market experience
- not exactly the most sophisticated insight. When in doubt, focus on the
reports made available by major financial institutions.
Most online currency trading
platforms also offer various types of market research and analysis, so when
you’re deciding which broker you should open your account with, look at the
quality (not to be confused with quantity) of its research offerings.
News sources
I tend to focus on the mainstream
financial press, which provides continuous coverage of the major financial
markets. Their Web sites provide frequent intraday updates that cover data
releases and announcements, usually with some institutional commentary as well,
so you can better understand how and why the market is reacting. In
alphabetical order, my favorites are
When you’re reading a market news
report, always use a critical eye. Keep in mind that what’s been reported has
already, by definition, happened and that the market has already digested the
information and likely adjusted prices accordingly.
When interpreting news and information
always ask yourself:
- What is the source of the information? You need to differentiate fact from opinion or rumor.
- How old is the information? You need to gauge the timeliness of the information and the extent to which the market has already acted on it.
Real-time market news sources
The forex market moves on news
quickly, and the institutional players generally have multiple live feeds from
the major accredited newswires, such as Dow Jones, Bloomberg, and Reuters.
Individuals can get real-time news, especially data releases, from the
financial TV networks, such as Bloomberg TV, MSNBC, and CNBC.
At FOREX.com, they provide a real-time
market commentary (known as Forex Insider) directly on their trading platform.
The updates are provided by their research team and senior traders based on
their years of experience trading in the interbank forex market. Forex Insider offers
instant analysis of data releases and other news events, as well as short-term
tactical trading considerations such as institutional buying and selling flows,
currency option interest, and technical support and resistance levels. I think
it’s a great insider resource for individual traders to stay on top of the
market.
Economic data and event calendars
The forex market revolves around
economic data and events, and you're going to need to find a reliable market
calendar to see what’s coming down the road next. The best market calendars contain
all the major upcoming economic releases, showing the time of the report, what
the market is forecasting, and the prior report indicated.
Perhaps even more important than
data reports are economic events like central bank rate-setting meetings,
speeches by central bankers or finance officials, and important meetings like
quarterly G7 conclaves or monthly gatherings of Eurozone finance ministers.
Comments from these events frequently move the market in the short term, and if
you’re not aware of them, you risk getting blindsided.
Currency forecasts
Most of the financial media are
keen on institutional forecasts of where currency rates are headed, and you‘ll
likely encounter a lot of one-month, quarterly, and year-ahead currency-rate
forecasts in your market research. However, treat these as an indication of
overall market sentiment and outlook instead of as a concrete trading recommendation.
Most forecasts are heavily skewed to current circumstances and are a much
better guide to what the market is thinking at the moment than to where rates
will actually be in a month or a year.