If you’re an obedient student, you shouldn’t start this part until the second day. Well, you may be a fast learner, not everyone’s head is made up of coconut like mine, all in all, all I seek is that you understand and implement the knowledge.
Let’s continue from where we stopped š„±
Forms of trading:Ā
There are basically two forms of trading in forex: fundamental analysis and technical analysis:
1. FUNDAMENTAL ANALYSIS
Also known as News Trading.
Here you are analyse the Forex market with respect to the News. It’s been said that News is what moves the market.
Everyday various news are being published by major countries and they either positively or negatively affect the currency pair involved and then you make your trading decision based on the news published.
We see these news on CNN, Bloomberg, CNBC etc. Also Your MT4 App has a summary of news section. Some other sites like forexfactory.com, dailyfx.com are places you can find a summary of these news.
As a Forex trader, whether the news is positive or negative, this is none of your business because you make money both ways. Those into Crypto Trading would tell you that you only make money when a Coin is appreciating but in Forex, we make money both ways:
If a Currency pair is appreciating, we go long on the pair (we buy), when a currency is also depreciating based on the news, we go short on the pair (we sell).
There is what forex traders call KING OF ALL NEWS
It’s the NFP (Non Farm Payroll)
NON FARM PAYROLL
This is a news released by the United States of America.
Among all the news released by the US, this is the highest because it causes the most volatility in the market. Non Farm Payroll is one of the biggest news that every trader awaits.
It’s a News that contains various data and statistics released by the US Bureau of Labor and statistics. It’s very influential as an indicator of US Economy because the US Federal reserve makes monetary policy decisions based on this data, hence Investors, Financial analysts, Forex traders, Stock traders make trading decisions on the news.
It is released every 1st Friday of the Month by 8:30am EST .i.e 1:30pm GMT (Nigerian Time )
The data released include:
1). Non Farm Payroll increase
This is the number of new jobs added in the US labor sector in the previous month.
This data includes employment in the manufacturing sector, construction sector, goods sector etc excluding farm workers (hence the name), also excluding private Ā household employees and non profit organizations.
It also includes:
1. Unemployment rate of the US
2. Which sectors of the economy, these jobs were added mostly
It gives investors and traders where are the possible sectors to invest in as the sector that
added more jobs would be most likely to have experienced growth.
It also includes the Average hourly earnings of workers in the US.
This is also an Economic indicator because even if the number of workers doesn’t change, but however their earnings increased it would have the same effect as if their number increased.
Same also could be interpreted in reverse, if their earnings reduced.
Then lastly the data includes a revision of previous non farm payroll because investors compare these values whether there has been an improvement or reduction. This also gives you an idea if the economy is growing or reducing.
INTERPRETATION OF NFP
When more jobs are added, it means that business ventures are growing and remember that these newly employed would be paid hence more people would have money to spend on goods and services thereby increasing the growth of the economy.
However, when the number of jobs added reduces, the reverse occurs. People won’t have money to spend on goods produced and services thereby dwindling the economy. Also the
US govt has an amount of money paid to the unemployed. When more jobs are added, more people would be employed, this reduces the unemployment rate, as the unemployed citizens reduce, less money leaves the government pocket, hence boosting the economy. This is a breakdown on what NFP entails and why it’s so volatile. It’s usually released 1st Friday of every month.
Most Traders Trade once a month. They fund their accounts specially for NFP and close for the month. People make what you would be paid in a year just on an NFP afternoon. ThatĀ is how massive Non Farm Payroll news. It causes huge volatility in the market.