In order to be fully operational in Forex, all changes in daily information that may affect the currency market must be assessed. At this point, please refer to everything we wrote about indicators in lesson 18 and lesson 19 to find out what elements to consider when evaluating an investment in a particular currency pair. In short, there are factors called economic indicators (GDP, consumption, income, imports, exports, employment, interest rates, etc.) that are the thermometer of the economy of a given country and therefore also of its currency (USD for the US) or the currency to which it belongs (EUR for Italy).
The data concerning these indicators can be retrieved both from specialized newspapers and from specialized sites such as Sole24Ore, Yahoo Finance, Bloomberg, etc. Each source is fine as long as it is accurate, reliable, and constantly updated.
However, daily variations may be of a different type other than the macroeconomic one. In fact, there must be at least 4 factors every day including:
- Graphs with related indicators
- Possible publication of macroeconomic data (which we have seen)
- News and Commentary
News refers to all news that can be obtained apart from the publication of macroeconomic data. It could be data or it could be an event. If, for example, a government collapses or is about to collapse, this information is not macroeconomic data, but it will certainly have a negative impact on the reference currency. Obviously, when the currency covers more countries, as in Europe, this event has less influence than it would have in a country like Russia, with its own currency.
Commentaries, however, are the opinions of experts in economics and finance on anything: macroeconomic data, events of various kinds, etc. We all have some finance experts we trust or believe their brilliance or genius. Commentaries help reinforce our ideas. Choose your favourite commentators well.
The analysis or the simple reading of graphs is a must for a trader. In addition to reading about rises and falls, peak times, etc. you must also keep in mind data on graphic functions that can be set via the platform (e.g., moving average, alligator, Bollinger bands, etc.).
Prices are the first thing you look at when you open a position, when you invest, when you buy or sell. Price is the starting point, but it is also an object of evaluation. The bid price, the ask price, the percentage change of the previous day, the minimum peak, the maximum peak. These are all factors that are easily controllable on the same trading platform.
- The difference between bid (sales) and ask (purchase) is important not only to check the progress of your position opening, but also for the spread, which is the difference between the bid and ask prices. For example, if you are a trader who is constantly looking for new products to trade, then the difference between bid and ask (spread) is very important as it changes from product to product and represents the broker’s gain.
- The minimum and maximum quote peaks of the previous day or the same day are often taken into great consideration because this way we can take into account whether there is still space in the movement of a trend or at least the probability that it will fluctuate a certain way.
- Percentage changes measure the difference between the opening price and the current one, so it can be positive or negative. It is positive if the price has seen a rise, negative if it has seen a drop. Remember that as far as currencies are concerned, the share that you see is relative to the amount of money in the denominator that is needed to buy the unit of the money to the numerator. So, if the EUR/USD share 1.25 means that it takes $1.25 to buy 1 euro.
Go to the next lesson – Correlation between Forex Currencies