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Understanding the useful Metrics in Forex trading
Source: | Author:finance-102 | Date2022-12-31 | 748 Views | Share:
In the context of forex trading, a metric is a measure or statistic that is used to evaluate the performance or state of the market. The following 8 metrics can help you improve your technique and take it to the next level. While no one is immune to losses and losing is a natural part of financial markets, these insights can help you avoid bigger losses.

In the context of forex trading, a metric is a measure or statistic that is used to evaluate the performance or state of the market. The following 8 metrics can help you improve your technique and take it to the next level. While no one is immune to losses and losing is a natural part of financial markets, these insights can help you avoid bigger losses.

 

Keep track of GDP rate data: GDP data shows the total volume of goods and services produced or provided in a particular country over a certain period of time. GDP growth rate allows you to make similar measurements but between two specified timeframes. Countries with higher GDP growth rates tend to be more attractive to potential overseas investors, which leads to a stronger national currency and gradually increasing value.

 

Track NFP data: Non-farm payroll data is specific to the US and is particularly useful if you trade currency pairs involving the USD. The data provides a comprehensive picture of employment and job figures that are not related to farming sectors via monthly labor job reports issued by the US Bureau of Labor Statistics. If NFP is high, it indicates more new jobs are being created and the economy is growing and developing, leading to a stronger currency. On the other hand, lower NFP suggests a slowing economy and a weaker currency.

 

Check the unemployment rate: This metric, which shows the percentage of unemployed people in a particular country, can be applied to any currency pair. When the rate is too high, it indicates a declining economy and a slowing down in development, as well as a decrease in GDP and purchasing power of the population.

 

Monitor interest rate announcements: Central banks intervene to stabilize the economy during times of recession or economic slowdown, which can also impact the Forex market. Major central banks (such as the Federal Reserve, Reserve Bank of India, and the Bank of England) typically make quarterly statements. If they increase the interest rate, it becomes tighter for the economy and the currency value is likely to decrease, and vice versa.

 

Consider CPI data: The consumer price index, or cost-of-living index, is a key metric for measuring inflation. Inflation can significantly affect the stock market, and the same is true for Forex trading. If there is high inflation, the currency value can drop dramatically. On the other hand, positive or increasing CPI data is associated with potentially increasing currency prices as central banks announce plans to raise interest rates.

 

Analyze PMI data: The purchasing managers' index, or PMI, provides insight into the manufacturing and services sectors of an economy. A PMI above 50 indicates expansion, while a PMI below 50 indicates contraction. Higher PMI values are generally associated with a stronger currency, while lower values are linked to a weaker currency.

 

Keep an eye on trade balance data: The trade balance, or balance of trade, is the difference between the value of a country's exports and imports. A positive trade balance means that a country is exporting more than it is importing, which is generally considered a sign of a strong economy and a strong currency. Conversely, a negative trade balance indicates that a country is importing more than it is exporting, which is typically seen as a sign of a weak economy and a weak currency.

 

Pay attention to political stability: Political stability can have a significant impact on the Forex market. 


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