Forex Trading Tips: Economic Indicators and Trading

by Bart Icles

Forex investors have to deal with a lot of information while they conduct trading in the forex market. Not only do they need to be on the lookout for changes in currency quotes, ask prices, and bid prices, they also need to be aware of forex signals. Forex signals, as the word signal suggests, give investors an idea of what trends to expect in the volatile forex environment. Oftentimes, forex signals are based on economic indicators.

It is not unusual for forex investors to keep watch of economic indicators since these indicators determine the economic state of a certain country. Economic indicators report changes in the economic conditions that have direct effects on the price and volume of the currency of a given country. Although economic indicators are not the only ones that affect forex signals, they still provide valuable hints on the future valuation of currencies.

Some of the most popularly used economic indicators in forex trading include the GDP, CPI, retail sales, and industrial production. The GDP or gross domestic product represents the total market value of the goods and services produced in a country during a given period of time. The CPI or consumer price index measures the changes in the prices of consumer goods across categories. The retail sales report the total receipts in all retail businesses in a certain country. And the industrial production shows changes in the production of industrial facilities, including utilities, within a specific country.

In conducting an analysis of forex market trends using economic indicators, it is helpful to have an economic calendar handy. An economic calendar lists different economic indicators and dates when they are due to be released. It also helps to keep a close watch of how markets move. Oftentimes, markets move according to expectations on the indicators or reports that are bound to be released. Investors must also be able to determine the economic indicators that often grab the attention of the majority of the players. More often than not, these indicators are the catalysts of largest price and volume movements.

As much as expectations are valuable, investors must also be careful not to rely too much on them. Investors are better off taking notes of market expectations, the economic indicators and reports being released, and the actual market results. In this manner, they are able to make comparisons of the differences in the three factors so they can make assessments as to what might have possibly caused the variance.

Monitoring economic indicators is indeed important when trading in the forex market. Investors must always be observant on changes in economic indicators, market reports, and market prices so they can react more accurately to future reports and forex market movements.

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