As a forex trader, use a combination of trading strategies in developing your forex system. This will reduce your risk and maximize pips for you. There are a few trading strategies based on fundamental analysis and others are based on technical analysis. You can use a fundamental trading strategy that is based on keeping on top of the global events for swing trading that may last from a few weeks to a few months.
Day traders and short term forex traders try to focus on only the economic news release of the week and how it will impact their trading. This works well for most of the traders. Learn forex nitty gritty, a trading 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 have the potential to change the fundamental perception about a currency for months and even years what to talk of days. Events such as wars, political uncertainty, natural disaster and international meetings have widespread psychological and physical impact on the currency markets.
Therefore, by keeping yourself on top of the global events and developments taking place, trying to understand the underlying market sentiments before and after these global events and anticipating them could be very profitable for you. At least it can help prevent significant losses for you.
What type of big events affects the currency markets in the long term, you may ask. G-8 Finance Minister meetings, Presidential and Parliamentary elections in big countries, important world summits, major central bank meetings, potential changes to the currency regimes, possible default by large 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.
Lets take an example, 2004 and 2008 US Presidential elections were hotly contested. Different Candidates had opposing stances on the growing budget deficit and how to deal with the recession engulfing the US economy. This made USD bearish during the election campaigns.
G-8 meetings also leave a long lasting impact on the currency markets. Collectively these eight countries account for the two third of the world GDP. So whatever decisions that are taken during these meetings usually leave a short term as well as a long term impact on the global currency markets.
For example, the USD collapsed after the September 2003, G-8 meeting in which the finance ministers wanted to see more flexibility in the exchange rates. This meeting was also important as the US Trade Deficit was ballooning.
EUR/USD pair bore the burnt of dollar depreciation. Japan and China intervened aggressively to stabilize their currencies. US Dollar had already begun to sell off leading up to the meeting. The trend continued for many months after the meeting with the EUR/USD pair.
So, the long term impact of these macroeconomic events is much more significant that the short term impact and the event itself have the ability to change the overall market sentiments for a long time.