Big events such as changes in political leaders, releases of economic data or statements by industry experts can all have an effect on global economies. This, in turn, has an impact on the assets or forex that you’re trading.
So how can you manage these big events to make the best of the assets you’re trading? Pro trader Ken FX Freak shares his insight.
What does trading big events mean?
There are lots of underlying influences that have an impact on the forex or assets that you’re trading.
This is partly because each currency has an economy it represents. For example, the UK economy is represented by GBP.
When big events happen in countries, such as the release of GDP data or a large political event, this can impact the economy and currency.
By looking at different events or data points, we can see how economies are performing. The value of their respective currencies can go up or down based on this.
This is important if you’re trading currency pairs, i.e. marking the performance of one economy versus another.
Looking at how an economy performs in response to these big events is also known as the ‘fundamentals’ of that respective economy.
How has trading big events changed?
When I started trading 11 years ago, we used to see similar data points to what we see today, but they had more of a direct impact on the market.
In the past, some growth data for the UK would come out and GBP would upside aggressively. You would then see a period of consolidation, a little pull back, and that would be your opportunity to go in before the market took off again.
Now, in terms of the initial reaction that the market has to these big events, they’re nowhere near as impactful as they were back then. That said, these events and data points are still noteworthy for traders.
An example of trading a big event
One example can be seen in Australia and how AUD reacted to the release of Gross Domestic Product (GDP) data last year.
This data came out higher than forecast at 3.3% (with the forecast being 2.5% and the previous rate sitting at –7%), so what you’d expect from this is to see some real strength coming back into AUD.
Indeed, when that data was released, there was an overall trend that continued on the upside for AUD. This built an overall picture of good growth for Australia and showed that the fundamentals were strong there.
Investors and traders now had more reasons to see a buying pressure – an upside – coming into AUD.
Tips on trading big events
Whether you’re trading forex or other assets, it’s important to be aware of all the high-impact events that are happening around the currency you’re trading. Stay informed of what’s going on and combine this knowledge with your technical bias to see how the charts fit with the data that’s coming out.
By keeping an eye on the bigger picture, you can make a more informed judgement of how an economy is going to perform. For me, trading big events is all about stepping back and understanding the broader context to manage your trading more effectively.
Of course, your chart analysis is going to give you a technical bias, but staying informed of current events will help you validate the views you’ve formed and plan for volatility.