Which World Economic Factors Influence Your Forex Strategies

Forex strategies developed for day to day, or longer term trading, need to have flexibility. So that the trader can handle the risk from various global events.

Global Event Analysis Used in Forex Strategies

Traders using forex strategies, should pay attention to some economic events, not all. While also learning how to make sense of geopolitical events, which impact risk appetite among investors. Economic events are complicated. Because of the complexity of the markets. The perceived message can vary dramatically from investor to investor. As one investor thinks the impact is already absorbed by the market. While other investors or analysts may appear in the media, giving all kinds of conflicting predictions. The easiest way to make sense of economic events, such as interest rate decisions and trade agreements, is to gauge investor sentiment. If the country in question gains in credibility, its currency will also gain such credibility. Whether it will rise or not it depends on how attractive that currency is at that time. But gaining a better reputation is the first step, for finally staging a rally. And because things are relative, a currency may rise not because of domestic economic improvement. But rather because other competing currencies poses greater risks. This is where serious economic events and geopolitics can appear out of the blue, and change market trends. All good forex strategies which focus on the US dollar and its crosses, take into account geopolitics. Any risk event, that causes uncertainty, such as instability which may lead to war etc. Has a direct impact on risk appetite, causing investors to buy the US dollar. And that’s when the US dollar will defy all bearish technical and even fundamental signals. And it will simply keep on rallying and rallying, going up on the charts like a rocket. All critical geopolitical events impact investor risk appetite, and override previous economic predictions.

Forex Strategies and World Events

Traders should pay attention to interest rates, inflation risks, and which currency is better than others, for inflation hedging purposes. You have to think like those billionaire investors who are willing to invest in anything, as long as the annual yield offsets their inflation costs. Typically, you will want to find the next best investment offering 2% to 4% a year. Because that’s the real inflation cost in most cases, in fact it’s more like 4.5%, but billionaires are willing to accept the reality. Which is that world markets are limited, and safe investments will not really fully cover inflation costs. No matter how wise the investor is. These investors make their real, adjusted for inflation profits, through riskier investments. Traders should also watch geopolitical factors breeding instability and uncertainty. All these factors can become economic factors overnight, and risk markets are very sensitive to them. Online currency trading is exposed to these risks. The same risks of course do create profitable opportunities. And they are all possible to profit from, through swing trading. Fast methods such as day trading cannot be used to profit from these risk events. Because more than half the time, the markets will make their moves outside your trading hours, probably at nighttime in your country. And day trading is based on the naive, perhaps wrong assumption that trades should not be held overnight due to higher risk. Well in fact, it is precisely this risk that makes markets profitable. It’s just that classic day traders lack the analytical skills to follow world events and make sense of them. It’s a fact that world events can override even previous fundamental analysis, and naive economic theories. That’s why many analysts in the media get their forecasts wrong on the US dollar, most of the time.

Beware of Economists

Economics is by definition a naive science, and different models of economic theory exist. Which do not agree with each other. Forex strategies should be based on risk appetite analysis first, and not so much on classic economic theories. The global forex currency converter mechanism is powered by investor appetite, and not by naive economic theories. In fact if you ask an economist some basic question, such as why there is inflation, they will give you all kinds of superficial analysis. But they fail to address the root of the problem. And in fact you can get perfect answers for such questions through physics. Because in a final analysis all financial transactions are energy transactions, where some energy is being consumed. And energy follows the rules of physics, where inflation, or energy diffusion is a fact of the universe. No work is done if energy cannot diffuse out, and the financial system follows suit. Because all money transactions are deep down energy transactions. Economists, at least most of them, also fail to assess risk appetite and critical non economic events. Because like everyone else, they tend to think in their field of expertise.