If you’re new to the forex market, it’s easy to understand why you may be inclined to favour the forex market. After all, this global marketplace has a total value of $1.934 quadrillion, which is more than 2.5-times the size of the global GDP.
However, this market is also inherently volatile and changeable, while its derivative nature and natural leverage also makes it possible to lose more than your initial deposit. This means that successful traders are forced to strike a delicate balance, which is one of the reasons why they rely so heavily on key trends and global events to inform their decisions.
But what are the key trends and events that you need to keep your eyes on as an aspiring trader? Here’s our three main picks.
- Global and Geopolitical Tensions
National currencies are impacted by a huge range of factors, from macroeconomic metrics (such as the base interest rate) to international relationships and geopolitical conflicts.
In terms of the former, an increase in the national base rate of interest (which tends to be regulated either by central banks or government bodies) is indicative of a growing economy, while this also attracts foreign investment and sustained capital inflows to the benefit of currency values.
Conversely, interest rates are often capped as part of quantitative easing measures and during times of austerity, causing capital inflows to decline and the value of the currency to dwindle as a result.
When it comes to the latter, geopolitical conflicts also impact directly on national economies and the demand for currency from overseas. This trend has certainly been observed during the recent trade tensions between China and the US, which has seen the yuan depreciate markedly and continue to trade in an ever-depreciating range.
Following such metrics and events can definitely help to inform your trading decisions, particularly when it’s combined with a broad knowledge base and a keen sense of determinism.
- Clustering Price Action
We’ve already touched on the high levels of demand in the forex market, with such periods likely to trigger sustained volatility and intense price action.
Make no mistake; this can cause significant price action clusters near key levels, and observing these over the course of several days or even a week can help you to gauge the market’s response to resistance and anticipate the next critical movement.
In general, if the market begins to cluster or group for an extended period at a key level, you’d expect the trend to be at the point of breaking down and reversing.
This could be key in informing your decision, and it’s undoubtedly one of the main metrics and trends to observe when executing your trading strategy.
- Identifying Overbought and Oversold Assets
If you’ve never heard of the PESTLE (Political, Economic, Social, Technological, Legal and Environmental) analysis, this refers to a key concept in marketing that is used to track the environment that they’re operating in before launching a new product.
Traders can undertake a similar outlook when creating and implementing their strategy, and one of the key aspects of this involves understanding key trends and events and their likely impact on the marketplace.
Identifying overbought and oversold assets can help in this respect, as this may prevent you from blindly following trends as soon as they’re established or closing a position just as soon as a pullback occurs. By understanding the assets in question and the likely direction of the near-term market, you can make informed and deterministic decisions that optimise your future returns.
So, rather than simply acting when a trend is determined to be bullish, you should use an overbought and oversold asset tool to understand the cause of the trend and its most likely outcome.
