It's a tired and retold story by now.
Donald Trump speaks, and the markets seem to go crazy. A few words, in some cases even a simple social media post, are enough to generate volatility, reverse trends, or create sudden turbulence.
This is a significant problem for everyone, but especially for those who operate in forex trading: by its nature, the foreign exchange market is extremely sensitive to the statements of political leaders, let alone a "bubbly" politician like the current President of the United States.
Beginners may not be prepared to face such unpredictable turbulence. Hence, the need for an article that addresses the main risks associated with the statements of politicians, the
methods to effectively protect oneself, and some tips to deal with the situation from a psychological point of view as well.
Politicians' statements: the risks for forex traders
This is the bitter truth: statements by political leaders can shift the balance between currencies with a speed that few other events can match. They represent an element of instability that is not always predictable. But here are the three main risks that directly affect those who, specifically, engage in forex trading.
- Sudden volatility. A politician's words can trigger sudden spikes in volatility, which often translate into violent and uncontrollable price swings. This can lead to premature activation of stop losses or losses that exceed expectations, especially in the presence of high leverage.
- Changes in sentiment. Statements influence investor sentiment. A negative announcement can generate panic, even in the absence of concrete economic data. This then triggers a domino effect, both psychological and mass, which can lead to movements contrary to the best-crafted technical analysis.
- Disconnection from macro data. In some cases, politicians' words push the market in a direction opposite to what is indicated by macroeconomic data. This neutralizes many strategies based on fundamentals, which serve as the basis for operations, and leaves the trader exposed to illogical or irrational market behavior.
How to defend yourself
But a defense is possible. It requires awareness, technical competence, and prudent risk management. Here are three technical actions that can reduce exposure to these events and literally save your skin.
- Limit leverage in delicate geopolitical contexts. In the run-up to elections, press conferences, or expected statements, it is advisable to reduce financial leverage. This allows for containing losses in the event of sudden and unexpected movements. Leverage, simply put, is not made for financial storms.
- Avoid trading during events with high political exposure. When an official intervention is expected, as in the case of a speech to the nation or an international summit, it is best to avoid opening new positions. It is better to wait for the market to digest the statements before becoming operational again.
- Use price alerts and real-time notifications. Price monitoring tools and keyword-based notifications (e.g., "dollar", "interest", "rates", "trade war") are useful resources in any case, but especially in scenarios of prolonged exposure. They can help react promptly. It is no coincidence that many brokers and platforms offer tools of this type, which facilitate real-time monitoring of significant events.
Some psychological advice
Emotional management is just as important as technical management. The issue concerns everyone but particularly beginners. They can become anxious or act impulsively, thus making inappropriate choices.
The most useful advice is to accept that
unpredictability is part of the game. Not all variables can be controlled. Politicians' statements are often ambiguous or contradictory. Understanding that there are margins of uncertainty helps reduce anxiety and act with greater clarity. Making peace with oneself, from time to time, works.
Fundamental, then, is practicing
patience. We know, the first impulse, when faced with a strong statement, is often to enter or exit the market. Nevertheless, it is preferable to stop, analyze the real impact, and only then decide whether and how to act. In this sense, it helps to have an analysis routine and a written plan, which are useful resources for maintaining discipline even under pressure.
In the background, a basic principle, a sort of open secret. Forex trading cannot be separated from the political component. Statements by world leaders, especially if coming from economic powers like the United States, are structural risk variables. The sooner one understands this, the better.
