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8 Simple Metrics to Improve Forex Trading Strategies

As you know, Forex trading means buying and selling currency pairs. For example, when one selects a specific Forex broker in India to purchase USD in a USD-INR pair, he or she expects the USD value to rise. If you decide to take a contrary INR-USD position, you act concerning the Indian currency, which generally refers to an exotic currency pair.

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It actually does not matter if you trade with a Forex broker in India or utilize different Forex strategies to cover major or minor currency pairs, the following 8 factors to watch will help you improve your technique and bring it to another level. While no one is safe from failures and losing is a natural thing for financial markets, these insights will let you avoid bigger losses.

1. Keep an Eye on GDP Rate Data

GDP data highlights the total volume of services and goods produced or rendered in the underlying country over a specified timeframe. At the same time, traders can use other metrics. GDPR growth rate makes it possible to do the same measurements but between two specified timeframes.

Countries with higher GDPR growth rates appear to be a better destination for potential overseas investors. As a result, the national currency grows stronger, having its value gradually increasing.

2. Track NFP Data

Non-farm payroll data is more of a US-specific metric. It will make sense if you generally trade currency pairs with the USD involved. The information provided by the metric can turn out to be a crucial tool when deciding on the next currency trading move.

The data highlights the situation in the labor market via monthly labor job reports issued by the US Bureau of Labor Statistics. In the end, Forex traders have a complete picture of employment and job figures that are not related to farming sectors:

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  • If NFP is high, it means more new jobs are created for the population. It is also a sign of a growing and developing economy as well as a strengthening currency.
  • Oppositely, lower NFP depicts a slowing down economy. The currency becomes weaker and is likely to lose its value.

3. Check the Unemployment Rate

The metric differs from NFP though it is still of great importance. The main benefit is that it can be applied to any country, not the only US. It means, the data can let you analyze any currency pair. It shows the percentage of unemployed people in an underlying country. Traders use it to see if the active labor force is growing or declining.

When the rate is too high, it is a sign of a declining economy that is slowing down in its development. Additionally, a high unemployment rate directly affects GDP as well as the purchasing potential of the population. The higher unemployment, the lower the number of people willing to buy products and services.

4. Monitor Interest Rate Announcements

To make the most of your Forex strategies, it is very important to make them properly react to different market conditions that change all the time. Central banks intervene to keep the situation under control during the recession and economic slowdown. The intervention can influence the Forex market as well.

As a rule, major central banks (the Fed, Reserve Bank of India, the Bank of England, etc.) make quarterly statements. If they increase the interest rate, the situation becomes tighter for the economy promising further decreasing currency value and vice versa.

5. Consider CPI Data

The consumer price index is also known as the cost-of-living index. It is one of the main metrics to measure inflation. We all know that inflation can have a great impact on the stock market. The same can be applied to Forex trading.

The currency value can drop drastically in case of growing inflation. At the same time, positive or growing CPI data is associated with potentially increasing currency prices, as central banks announce to raise the interest rate.

6. Analyze PMI Data

The purchasing managers’ index comes as a set of indicators to measure different industries with their economic trends. The data covers both service and industry sectors. Experts use it to define if the overall country’s economy has the potential to expand. PMI data helps to detect other economic phases and market cycles including stagnation, contracting, etc.

7. Core Retail Sales Data

Once again, here we have metrics that only refer to the USD and US-based economy. You can use it when targeting currency pairs with the US dollar involved. The data highlights the aggregate retail sales metric with the exception of auto and gasoline sales.

Traders can analyze monthly reports making the situation around the overall country’s economic health clearer. With this data, we can see how willing consumers are to spend more.

8. Get Ready for Elections

We have already witnessed numerous speculations around elections over the last few decades. However, they are still one of the most powerful tools in keeping both markets and traders uncertain. A country with elections about to be launched always has a sense of political and economic uncertainty.

Sometimes, it makes international investors depreciate the potential of the region, which inevitably leads to the depreciation of the currency value. If that happens, the best idea is to sit, wait, and monitor the situation avoiding rapid moves. After results are officially announced and stated, Forex traders may expect the volatility to end up with a clear either bullish or bearish trend.

The Bottom Line

Forex trading is not just about picking a pair. Forex strategies must be based on specific data and approaches that are flexible to market changes. All the above-mentioned represent crucial metrics that help to see the complete picture depicting a country’s economic health and further potential for its development or growth. The key to success in Forex trading is to make wise and evidence-based decisions.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.