Forex traders often overemphasize the impact of the economic news and ignore the fact that often after the announcement the price moves in the opposite direction.
After a few years many traders get trapped in the net of trading news overusing the fundamental analysis. Trying to figure the market after some major political or economic announcements seems to be a natural thing to do. However, strange as it may seem, forex traders who focus too much on the news often lose because the market often turns the opposite way of what the news implies.
If your trading decisions are based on what you think will happen after a certain economic report then you are really just guessing and really have no better chance at a winning trade than if you were to flip a coin.
Many traders think they are getting some sort of “advantage” by studying the implications of various economic reports like NFP and others, but price knows no advantage and there’s no distinct advantage to anticipating or trading the news. But remember that you are, basically, trading the news, not the currencies, which is often a very dangerous thing to do.
Let’s discuss trading the news a bit deeper
In many ways forex exchange changes more in-line with the expectations an forthcoming financial news rather than with what the actual news is. Remember that forex trades trade their beliefs and ideas about the financial or political news. Therefore, when the actual event happens the market moves are over or even goes in the opposite direction. This is why you may have heard the term “buy the rumor sell the fact”.
It is not hard to get sucked into the trap one specific economic press release looks like it might really move the market in a certain direction and ignore other news.
You may try to prove to yourself that you expected move will happen, but what really happens is that you have basically dug your own grave for your trading account. The beginners of forex often get into this game which changes their evaluation of the risk associated with the particular trade. This combined with poor money management and your trade nukes your trading accounts. You are frustrated you lose confidence, you want it back, you start guessing again (forex gambling) and this is the end of your forex trading career.
Prices in forex markets are naturally contrarian. It means that usually price will do the opposite of what most amateur market players think. This is why many forex beginners have so much trouble and lose all their money. Remember that it often looks “safe” to enter a trade, but this is the exact time when other traders including some professional traders are getting on board. They also feel “safe” about entering. Many of them are trading from that safe feeling because they do not have any trading strategy. If you start this emotional trading you will end up buying tops and selling bottoms, which is what losing traders do
This favorite quotation from C. Dow gets a new meaning. You can avoid the danger of “trading the news” by remembering that the dynamics of the forex pairs represents everything you need to know about the market at any given time. Price action shows you the direction a market is more likely to go before any economic report is released, that is if you know how to read and make sense of a market’s price action.
The dynamics contains all the information you need to be a successful forex trader. Moreover you do not need to over-analyze every single economic indicator and pull your hair out with frustration from trying to figure out what will happen next.
The only thing you really need is the numbers and their. This is what define your entry and exit strategy. Many traders are consistently profiting from that strategy for years without even a thought about economic press releases. We have all heard the acronym KISS; keep it simple stupid. It is very relevant and applicable to your entry and exit strategy. There is so much myths out there and so many people trying to sell them it is not surprising most of the forex beginners lose money and quit. Technical analysis will take you inside the markets and this is what all you need to understand and trade the markets effectively. Stop trading myths and get yourself a solid education in technical forex analysis and it is all you will ever need to boost your earning potential.
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