There are many factors that determine when to trade and when not to trade in currencies. Market volatility, Correlation, Central bank meetings, and Economic news are all factors to consider. However, there are some exceptions to this rule. If you intend to make money trading currencies, read these guidelines. Here are a few examples of when not to trade. If you can’t wait for all of these factors to play out in the market, consider not trading currencies at all.
Market volatility
There’re some major scenarios that you should avoid trading in specific currencies. This type of trading is not regulated, and there are also instances when the market can be volatile. You should avoid opening and closing positions in these currencies, as this can cause volatility. Similarly, you should avoid holding your position over the weekend, which can cause a significant amount of risk. The apt way to avoid making such mistakes is to learn to identify the key indicators of these markets.
Correlation
To find out whether the currency pair is a good candidate for trading, look at the overall market trends. There are two main types of trends that you can look for in a pair. The first is a rising trend. When the dollar rises against other currencies, EUR/USD is likely to increase. On the other hand, if the British pound declines, EUR/USD will fall. When both trends are present, the currency pair is a good choice for trading.
Central bank meetings
The financial markets pay close attention to central bank meetings. Fed’s Federal Open Market Committee, ECB’s Governing Council, and BoE’s Monetary Policy Committee are among the most important. These meetings have huge implications on the most commonly traded currencies around the world. These meetings also have a significant impact on stocks, indices, and commodities. Traders need to know how to prepare their portfolios for central bank meetings.
The central bank’s goal is to ensure that prices are stable during economic growth. This occurs by increasing demand for a given currency and bringing down prices when spending declines. Inflation is measured as the pace at which consumer prices change. It is considered healthy for an economy to have an inflation rate of around 4%. Too low or too high of an inflation rate can cause serious problems. Traders should know when to avoid trading currencies during a central bank meeting so that they don’t get into trouble.
Economic news
There are times when you should not trade in currencies based on economic news. Good news will encourage investment and push prices higher, and bad news will decrease demand. Currency prices tend to move in tandem with the reported economic health of a country. The key to trading currencies based on economic news is to avoid speculating on upcoming events.
Global economic indicators are also a good place to start. Purchasing Managers’ Index (PMI) and Housing Starts are some of the most important indicators to follow in fundamental analysis. You can also focus on major economic releases, such as interest rate decisions.