Importance of Economic Indicators

One of the major ways to make your forex trading successful is to be aware of economic indicators. In fact, it’s hardly possible to be successful without paying close attention to indicators. If done right, some of your most successful trades can be in conjunction with these announcements—either just before or just after new information reaches the markets.
But there are several reasons that forex traders might not pay enough attention. For one thing, it can be confusing to keep track of when the announcements are coming. Every year, the number of significant economic indicators increases, and with online trading, the response in the markets is immediate. Checking the news every hour simply isn’t enough to take advantage of indicators. But on the other hand, it is rather complicated to keep track of what is coming, when a normal business day might involve ten or more indicators. Depending on the status of your forex account, you might be able to obtain this information from your forex broker. However, not everyone knows where to find a list of these announcements.

Another reason that some trader’s pay minimal attention is the inherent complexity of the economic indicators. There is a myriad of acrostics and jargoned titles that describe a whole world of complicated measurements. Most forex traders left the macroeconomics classroom a long time ago with no desire to go back. The problem is that you really do need to understand many of these measurements to make use of them. Some are extremely significant, and worthy of significant attention; others are hardly important. It’s never easy to keep track of which belong in each category.

This leads to a third reason that many traders neglect this factor: they struggle to understand the complex relationship between economic indicators and the financial markets. Just as a new forex trader begins to venture into this area, he hears positive numbers from one of the major indicators; he bets on a rise, only to watch the market fall. That’s all that it takes for some beginning traders to decide that their time is better spent focusing on something else.

But this is an extremely unfortunate conclusion. As in all financial markets, success depends almost entirely on two things: how well know what is really happening and the quality of your guesses about the future. You will make successful trades when your sense of these two realities is better than the rest of the market. Economic indicators are a huge factor in forming an accurate picture of the market—probably the biggest. You will not have a superior picture of what is happening without following the major indicators.

Finally, many traders struggle to know how to respond to new economic data. What should you do when implied volatility goes up? Your knowledge is useless unless you can convert it into successful trades.

So how do you overcome these difficulties and benefit by following economic indicators? This series is designed as your guide to using economic indicators effectively. Here, we will discuss how you can get easy access to the information, and how you can use it for your trading without getting a degree in economics. Forex traders want pragmatic, real-world information, and this guide will help you quickly find the information you need to make your decisions.

In addition, we will explain why the forex markets sometimes seem to move in the opposite direction to what indicators might cause us to expect. If you haven’t relied on breaking economic news for your trading, or if you tried and became frustrated, this guide will be a good starting point to make you a more successful trader.