This lesson is going to be very brief and we will cover the topic in further detail later on however it is quite important when trading forex. At this point, we need to take a step back and remember that the price action that we have been trading is not a random movement on the screen. It is a response to the events occurring around the world.
If you have been using a demo account to practice these lessons yourself, you should have started to feel pretty good about how well you can predict the price movement. However, every so often you may have noticed that despite how strongly your indicators suggest that the price will move one way it moves in the opposite direction in a sudden, decisive manner. The most likely reason for this is that there has been a significant news event which is relevant to one or both of the currencies being traded. For example, if a failing company, whose share price has been falling, announces that it has created a new technology or that it has had excellent profits recently, its share price will immediately start to rise. Similarly, if after a period where the value of a currency was falling, a news announcement is made showing the country has created a significant amount of jobs thus showing a healthy growing economy; the value of the currency will go up despite all the technical indicators suggesting otherwise. The events in the news are the driving force that makes the price move.
Simply put, it is important to keep an eye on the news. As well as the regular news there are scheduled news reports and announcements which are directly relevant to the currency markets. Many places online provide a list of which announcements are scheduled and when, as a “Forex calendar”. We will cover this topic in more detail in a later lesson, however for now you may want to subscribe to a news feed, turn on a finance news channel or simply be aware of major news events scheduled for the current day.