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Forex trading during world economic crisis

Aug 29, 2020 07:30


World Economic Crisis is a burning issue not only for those dealing with finance but also for all social groups as everyone, one way or another, is influenced by economic cataclysms. Some are afraid of inflation rate and reduction of wages, the others are scared to lose their jobs. So traders here are not the exception as their work is directly connected with finance and everything that is happening in the world of currency undoubtedly affects the exchange market. That is why, probably, at least once every trader wondered what would happen on Forex if another finance crisis takes place and how the members of the foreign exchange market should react to such major events.

Indeed, the World Economic Crisis leaves its mark on Forex with both positive and negative after effects. During the crisis period the amount of such news is getting much bigger than during peaceful periods. As soon as the financial situation loses stability, the currency rates undergo great changes. While the newspapers headlines as well as on-line publications are full of information about the new world economic events, it becomes more complicated for a trader to deal with such a great amount of information, analyze the conditions in time as well as correctly predict the behavior of currency rates. A trader can easily benefit from this event and multiply his/her capital while continue working confidently. There is no need to be afraid of the raised market volatility – better to know how to get money out of it.

Normal,Crisis or”Normal Crisis.”

Human beings have two patterns of behavior. The first pattern is the normal set of rules for day to day life. The second mode is crisis mode, when normal rules completely break down and we have to start to think in a different way if we want to survive. Crises are rare, so we often forget about them and start to think they are rarer than they really are.

It is very difficult for most people to make the mental change between “normal” and “crisis” until they see the danger coming right at them. For modern humans, though, it is not enough – we face dangers that cannot be “seen” up close until it is too late, even though we have the intellectual tools to understand them and the technology to beat them. The Corona virus pandemic of 2020 is an excellent example of this – the pandemic might have been stopped in China, but people and governments acted too little too late, even though they knew what could happen if they didn’t act. This is probably because such a pandemic had not been seen within living memory in the western world, and so people just couldn’t believe that it would really happen, even though there are institutes and scientists working every day to warn people that it was only a matter of time before it happened.

As financial markets are driven by human buyers and sellers, financial markets also operate in two modes – “normal” markets and “crisis” markets. To be successful in the market, a trader must be able to know when markets are driven by a crisis and whether there’s reason to panic or it’s just a small crisis. Then, the successful trader needs to apply different trading rules to each different type of market. It is important to differentiate between a relatively small crisis and a true panic, which We will call a “World Crisis”. Good examples of true world crises within the past century are the Financial Crisis of 2007-2008, the Cuban Missile Crisis of 1962, the Second World War from 1939 to 1945, and the Corona virus Pandemic of 2020.

How do you know when it’s a world crisis? 

There are two simple rules to use that will tell you whether you are in a real “World Crisis” or just a more normal smaller crisis. The first rule is, are markets moving consistently with abnormally high volatility? You can measure this by applying the average true range indicator over the long term and comparing it to the recent daily ranges of stock, Forex, and commodity markets. If the current ranges persist for several days at levels far above their long-term averages, and stock markets are mostly going down, then it is obvious that a major crisis is going on.

The second rule is not mathematical, it is emotional – is everyone you know who follows the news saying in fear “Oh, I can’t believe this is actually happening, it can’t be real”? . When you have aware people talking like this and crashing the markets on very high volatility, you have a true world crisis.

What to trade during a financial crisis?

The Economic Crisis and instability you are describing is a great opportunity for Forex traders for the following reasons:

Increased Volatility : Many Forex trading systems need volatility to work. It is likely to volatility would increase considerably leading to more trading opportunities.

Longer term trends : Certain currencies will be impacted more than others. Which ones will have to be determined closer to the time and on an ongoing basis. In the end, this could results in trends where some currencies weaken a lot more than others. Trading with the trend in this scenario will be like printing money.

Selling is normal in the Forex market : No matter which direction the currency price is moving it is a trading opportunity. That is unlike the stock market where there have to be buyers for you to be able to sell.

Trade with Currency Alternatives : Many brokers offer currency alternatives such as Gold and financial indexes with the advantage of liquidity. So you don’t need to own Gold to trade gold.

So We would suggest you to develop your technical analysis and fundamental analysis, Manual Forex trading skills and trade the market as regularly as possible. Get your mind, commonsense and intellect involved in trading – not like many traders who strive for mindless automated systems. Scalp for a few hours a day and swing trade at the same time. Tune into what is going on and pay attention to the relative strength of currencies. Try to find reasons why things happen is the market. Why is the AUD trending downwards? Why did that turning point develop ? You will be amazed how quickly you can tune into the market and understand what is going on within 2 weeks of going that. If you develop and intimacy with the market you will profit tremendously from market instability and volatility in the future as identifying trading opportunities using fundamental and technical factors will be second nature.


Therefore it is very important for every trader to correctly react to financial cataclysms and try to elicit all the benefits out of such situation, still getting the profit. Nothing is more frustration than a dull, direction-less and lackluster market and what you are describing is the opposite. First of all, there is no need to panic while monitoring a huge flow of world economic news. Nevertheless, together with the right approach and substitution of emotional breakouts for rational judgments it is possible to change things for the better. As Forex trade is based first and foremost on buy and sell operations, the traders risk less to lose their job during the economic crisis. The tools and methods that exist on the foreign exchange market will always allow to get the profit. If financial crisis involves some currency exchange rates falling, the quotes of other currencies raise automatically, which in case of competent analysis gives an opportunity for a trader to consummate a transaction with a benefit.

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