The online forex trader today has a vast amount of news at his fingertips due to growth of the web and many investors think the more news they study and act on the more likely they are to win, however the exact opposite is true:
Pay to much attention to the news and you will lose.
The reason for this may not be obvious, so lets look at this question in more detail and see why.
Will Rogers once said:
I only believe what I Read in the papers
He was joking but the majority of new online forex traders think they can use the news to their advantage, but they cant heres why:
Markets discount
Lets face it, we see stories all the time from news wires that are full of convincing reasons why a currency will rise and fall, but in most cases there simply good stories and the currency often moves in the opposite direction.
The markets however dont move on supply and demand fundamentals and opinions nor do they move logically.
Currency prices move to the following equation:
Supply and demand fundamentals + Investor psychology = Market movement.
Investors are in the equation and it is how they view the news that is so important, not the news itself.
Investors are driven by emotions greed fear and hope and it is they that determine the price.
Markets discount news instantly in todays world of lightening fast communications, so it is almost impossible for most traders to trade off news stories.
Throw in the unpredictably of human nature and trading news for most investors means losses.
Discipline
If you pay to much attention to the news, your emotions can well come into play.
You will hold positions you should not, simply because the experts are saying they are right in the press.
Dont forget these experts are selling stories and are not traders.
If you pay to much attention to the news you will simply let your emotions get in the way and discipline will go out the window.
Its a fact, that:
Major market tops are formed on bullish news and major market bottoms are formed on bearish news.
A compelling conclusion
For small traders the best way to trade fore markets is with a disciplined technical system.
Why? Because it takes the news into account anyway.
All it assumes is that fundamentals are instantly discounted and will show up in price action.
Not only does technical analysis take into account the fundamentals and news, it also takes into account investor psychology.
Taking into account investor psychology is critical, as investors determine the price of anything.
Human nature never changes.
Repetitive price patterns can be seen in charts that reflect human psychology and can be traded for profit.
That is the opportunity, if you trade with a technical system and ignore the news.
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