Although currency traders can trade on the forex markets 24 hours a day, the markets are closed on weekends. However, the best traders do not waste this time but use it productively by conducting a weekend forex analysis. Conducting this analysis allows you to become mentally prepared for another week of making profitable trades. You also have the luxury of observing the markets while they are not in flux, allowing you to see trends you might not otherwise have perceived because you were too busy reacting to quickly changing situations. And when you’re not busy trading, you have the luxury of creating a trading plan that can guide your trading activity in the coming week.
You can start conducting your weekend forex analysis by looking at the forex charts for the past week and looking for developing patterns that could impact on your trading activity for the coming week. In addition, you should also review your forex calendar and consider what upcoming economic and political news is set to be announced and how they can impact market sentiment and affect exchange rates. The weekend is also a good time to reflect on what might be driving the currency markets. For example, is there news of an impending rate hike that could cause the exchange rate of the currency pair you’re currently trading to appreciate as investors enter that economy and exchange their currency for the local one?
By taking time to reflect on the fundamentals of what actually moves the currency markets, you can also avoid being swept away by what the financial pundits are forecasting and acting reflexively on their pronouncements. These pundits contribute a lot to market sentiment and so you do have to take what they say into consideration. At the same time, however, you should also give more weight to long-term consensus outlooks, in which the expectations fall within a range of anticipated outcomes rather than a single person’s opinion, no matter how respected they are.
One good mind exercise for your weekend forex analysis is to consider the possible relationships between the forex and other markets. Keep in mind that in a global economy, all markets have become interdependent. For example, if a government purchases bonds, does it increase demand for the local currency? And what does this mean for the exchange rate? Try charting the price movements of two markets using a simple line graph and examining the relationship between them. Does the graph show that there is an inverse relationship or do the two markets move in concert? What does it mean in light of current developments? And is there a potential trade there that you can make?
But the most important reason for conducting a weekend forex analysis is that it will train you to take the long view rather than focusing purely on short-term profits. You will learn to identify setups that could lead to larger profits. But most important, you will also understand that the market does not operate on your timetable and that sometimes, you have to wait until the right opportunity develops. The weekend analyst realizes that patience and discipline are trading tools as important as charts and economic calendars.