Today, we have more news than ever and its delivered in the click of a mouse and many traders want to trade it and make profits – after all it’s the fundamental supply and demand situation that drives forex prices…
No it isn’t!
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Supply and demand fundamentals are not important by themselves – it’s how they are perceived that determines price.
Here is a simple equation for market movement to illustrate the above:
Supply and Demand (facts and news) + Investor Perception = Price
From the above you can see that it is investors who determine price.
We all have the same facts to look at but we don’t all draw the same conclusions from what we see and this is the problem when trading news stories. If you could win by trading the news, with today’s quality of it and lightening communications, the percentage of traders who would win would be far greater but the fact is:
The same amount of people who lost in forex trading 50 years ago lose today and this statistic won’t change because you can’t trade news stories in isolation. The problems with trading news stories are greater today than they have ever been.
Because we all get the information quickly and it’s instantly discounted by the market, we all have the information at the same time in any corner of the globe online and no one has an advantage of getting it first before the herd.
The problem that is always present and has been since markets started trading is:
You don’t know how the traders are going to view the news because their all driven by their individual motivations and emotions furthermore, the news always reflects the views of the crowd and the crowd is always wrong.
Will Rogers once said:
“I only believe what I read in the papers”
He was joking of course, but it’s surprising how many people read a paper or see a view on CNBC and think they can trade it and win – they can’t.
Markets collapse and turn when they are most bullish and rally when they are most bearish – this is nothing to do with the facts but how the investors perceive them.
News stories can be used but it’s not in the way you may think. If a bullish piece of news fails to push market higher, or bearish news fails to push a market lower, then you may have a trend change at hand.
You need to check and to do this, look at a forex chart and see the technical view of price only. Here you are seeing the reality or the truth in black and white. This gives you a detached non emotional view of price and you can decide which way to trade. Using the news in this contrary fashion is a great way to spot situations which you can time entry with your technical indicators.
There is an old saying:
” If you can hold your head, when everyone around you is losing theirs you probably haven’t heard the news”
In the above instance you have – but you’re not taking the view of the majority. If you use news in the above way and combine it with forex charts to time your trading signal, then you have a powerful combination for bigger forex profits.