Forex economics pdf

on critical economic data before trading (particular currency pair) on forex market. transactions are primarily in forms of buying and selling of currency notes.
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Once we have assigned values to each of the calculated differences, we should be alerted whenever new data inputted into the index shows an extreme - 0 or This would indicate that the difference between the positions of the two groups is largest, and that a reversal may be imminent. Remember, we are interested in knowing whether the trend is going to continue or if it is going to end.

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If the COT report reveals that the markets are at extreme levels, it would help pinpoint those tops and bottoms that we all love so much. We dug around the forums and found this little gold nugget for you. Apparently you can download the COT indicator if you're trading on an MT4 platform and you can find the link in our COT data to indicator forum thread! Recall that not every sentiment extreme results in a market top or bottom so we'll need a more accurate indicator.

Calculating the percentage of speculative positions that are long or short would be a better gauge to see whether the market is topping or bottoming out. Going through the COT reports released on the week ending August 22, , speculators were net short 28, contracts. On March 20, , they were net short 23, contracts. From this information alone, you would say that there is a higher probability of a market bottom in August since there were more speculators that were short in that period. But hold on a minute there You didn't think it would be THAT easy right?

A closer look would show that 66, contracts were short while 38, contracts were long. On the other hand, there were just 8, long contracts and 32, short contracts in March. What does this mean? There is a higher chance that a bottom will occur when As you can see on the chart below, the bottom in fact did not occur around August , when the Canadian dollar was worth roughly around 94 U. The Canadian dollar continued to fall over the next few months. Then what happened? It started to steadily rise! A market bottom? Yep, you got it. Before we start betting the farm based on our analysis of the COT report, remember that those were just specific cases of when the COT report signalled a perfect market reversal.

The best thing to do would be to back test and look at reasons why a reversal took place. Was the economy booming? Or was it in the middle of a recession? Remember, the COT report measures the sentiment of traders during a specific period of time.


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Like every other tool in your toolbox, using the COT report as an indicator does not always correlate to market reversals. So take the time to study this report and get your own feel of what works and what doesn't. Also, before we bring this lesson to an end, always keep in mind that market prices aren't driven by solely COT reports, stochastic, Fibonacci levels, etc. The markets are driven by the millions of people reacting to economic analysis, fundamental reports, politics, Godzilla attacks, UFO sightings, Lady Gaga concerts - life in general!

It is how you use these tools that will help you be prepared to what lies ahead. In conclusion Trading the News Extra! Reading up on the news reports may just reel you in a handful of pips! Lessons in Trading the News 1. Importance of News Like how things are in the world of Star Wars, there is always fundamental force behind each movement in the market.

Why Trade the News Trading the news is a double-edged sword. Sure, you can earn a lot of money by doing it but you also stand to lose a lot in times of increased volatility! Which News Reports are Trade-Worthy? The most-watched news reports are from the U. Can you guess why? Directional Bias vs. Non-Directional Bias "Buy the rumor, sell the news. Trading with a Directional Bias Let's take a look at an example on deciding whether to go long or short before a report is released.

What do you do next if you want to let the market decide which side to take?

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Summary: Trading the News You could get burned a couple of times by trading the news so practice, practice, practice! It will be very rewarding once you get the hand of it. Importance of News It's not enough to only know technical analysis when you trade. It's just as important to know what makes the market move. Just like in the great Star Wars world, behind the trend lines, double tops, and head and shoulder patterns, there is a fundamental force behind these movements.

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This force is called the news! To understand the importance of the news, imagine this scenario purely fictional of course! Let's say, on your nightly news, there is a report that the biggest software company that you have stock with just filed bankruptcy. What's the first thing you would do?

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How would your perception of this company change? How do you think other people's perceptions of this company would change? The obvious reaction would be that you would immediately sell off your shares. In fact, this is probably what just about everyone else who had any stake in that company would do. The fact is that news affects the way we perceive and act on our trading decisions.

It's no different when it comes to trading currencies. There is, however, a distinct difference with how news is handled in the stock market and the forex market. Let's go back to our example above and imagine that you heard that same report of the big software company filing bankruptcy, but let's say you heard the report a day before it was actually announced in the news. Naturally you would sell off all your shares, and as a result of you hearing the news a day earlier, you would make save more money than everyone else who heard it on their nightly news.

Sounds good for you right?


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Martha Stewart did it and now she has a nice mug-shot to go along with her magazine covers. In the stock market, when you hear news before everyone else it is illegal. The earlier you hear or see the news, the better it is for your trading, and there is absolutely no penalty for it!

Add on some technology and the power of instant communication, and what you have is the latest and greatest or not so greatest news at the tip of your fingers. This is great Big traders, small traders, husky traders, or skinny traders all have to depend on the same news to make the market move because if there wasn't any news, the market would hardly move at all! The news is important to the Forex market because it's the news that makes it move. Regardless of the technicals, news is the fuel that keeps the market going!

Why Trade the News The simple answer to that question is "To make more money! When news comes out, especially important news that everyone is watching, you can almost expect to see some major movement. Your goal as a trader is to get on the right side of the move, but the fact that you know the market will most likely move somewhere makes it an opportunity definitely worth looking at. Dangers of trading the news As with any trading strategy, there are always possible dangers that you should be aware of.

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Here are some of those dangers: Because the market is very volatile during important news events, many dealers widen the spread during these times. This increases trading costs and could hurt your bottom line. You could also get "locked out" which means that your trade could be executed at the right time but may not show up in your trading station for a few minutes.