I Hope you have gone through the forex basics and understood how the forex trading works. In this lesson I will be introducing you to some trading strategies and economic data releases which have immediate affect on the market.

As I have said in forexbasics, forex trading is about descipline, money management and risk management. One need not be an economist to predict the forex market. One need not keep watching market through out the day (and night) to trade in forex market. You need not be a technical analyst or fundamental analyst to make money in forex. All you need is a right strategy and descipline to follow the starategy. Make your own rules, but don't break it.

How Important are news and economic data releases?
Lot of people trade based on news and economic data releases. The news and data have only a temporary effect in the market. On september 11th dollar crashed after the terror strike. It crashed next day too. But in following days, dollar gained strength and made new highs. During Kosovo war, when euro was crashing against dollar, all gave reasons to kosovo war. When the war got over, euro gained few pips and later continued its downward trend. When some ministers in japan give statement favouring weaker yen, you will see a sudden spike in Dollar/yen. After few hours you can notice that it will come back to where it was earlier. There are lot of data releases from USA at 13:30 GMT. you may notice that a dollar supportive news may just push dollar up and little later market is back where it was trading before the data release.

If you observe the market reaction during data releases for few days, you will be able to understand when to protect your profits and when to open positions. If you notice that dollar has been weakening throughout the asia and european sessions, a negative data may not pull the dollar much down but a positive data will give a quick correction. and after a while it will be back at where it was.

You can actually ignore the news and facts. It is advisable to move trailing stops just before data release to protect profits.

Trailing stop

If you buy something at 40 and the market is trading at 90 just before data, its better to place a stop at 80 so that if there is a sudden fall u may exit at 80 with 30 pips profits. and when the market comes back to 40 to 50 you may buy back.

Strategies

I use 2 different startegies depending on the market.
1) Trade in medium term direction with large stop loss.
For example euro is in upward direction. u may keep buying euro at lower and take profits and buy back. if euro falls more after you buy, you may buy more at lower keeping stops for all at much lower level. Incase of a currency changing medium term direction, ou may end up loosing a big amount. But, that doesnt happen too often. by the time it happens, you may have recovered part of the losses by making many trades at lower levels. This strategy is advisable for accounts with large equities.

2) Keep small loss and big profit targets
Here you will be trading only if you find the RRR attractive. RRR means risk to reward ratio. here you will enter market only when there is more room for profits and less for risks. You may have position something like this. Buy at 1.2230 stop loss at 1.2130 and target 1.2430. In this trade you are risking 100 pips for a profit of 200 pips. You can even trade for less pips. For example buy dollar/yen at 108.60 stop loss at 108.20 and target 109.10 Here you are taking 40 pips risk for a 50 pips profits