Can studying the news help you make profits in online FOREX trading? The answer for most traders is a no.
In fact, paying attention to the news in online FOREX Trading will lose money. Why? Read on and let’s find out.
How and why prices move
In online FOREX trading (and any financial market for that matter) prices move based upon the following equation
Supply & demand fundamentals + Trader psychology = Market price
Which is most important? In today’s markets definitely the latter – Why?
Quite simply, markets discount fundamentals quickly and with the internet its done in seconds.
In all corners of the globe the internet delivers information quickly and it’s immediately discounted in the market price.
This means traders make opinions on what will happen in the FUTURE and it is their psychology that is the key to future price direction.
Sure, the papers and news wires are great at telling you why things DID happened and their normally wrong about WHAT will happen.
Traders get deluded by the experts in online FOREX trading and fail to see their wrong most of the time.
Will Rogers once said:
“I only believe what I read in the papers”
Now, he was joking, but most traders take news services as gospel.
Reuters and Bloomberg stories agree with them, so they must be right, is the view of most online FOREX traders. Don’t think so, in fact we know so, based upon the facts and the so called experts past performance.
It’s easy to be wise in hindsight, but looking into the future is much more difficult!
They write stories for a living they DONT trade, traders that are interested in making profits should not be following news stories or media hype.
It’s a fact: Most important market tops and bottoms and formed when the news is most bullish or bearish. When the trends change of course, news wires have an explanation but that does not help you trade!
In the 1987 crash they were bullish in the tech stock boom they were bullish and these are just tow examples of media experts being wrong and there are many others.
Understand the past and look to the future
This is the key to successful online FOREX trading. Quite simply the fundamentals are digested in seconds and reflected in the price.
Its trader psychology that’s important as they look at the future and how they determine the supply and demand situation is reflected in price changes.
Human psychology has remained constant over time and thats why many price patterns are so reliable and point to important market tops and bottoms when the market is either very bullish or bearish.
Of course, prices then go the other way! confounding the so called media experts.
Technical analysis of markets
The only way you can win in online FOREX Trading is to use a technical analysis system that focuses on price.
Why use a technical system in online FOREX trading?
There are two main reasons
1. You will not be distracted by media stories and news hype and will keep your emotions in check.
2. If you are involved in online FOREX trading you can look at charts and see long term trends that last for months or years and many of them (in fact most of them!) run against what the papers and the so called experts say!
To be a success in online FOREX trading all you need to do is focus on these trends and forget the news and media, media experts don’t get paid to trade, they get paid to write stories.
Focus on the reality of the price, not the media hype and you can make big profits in online Forex trading.
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Written By: Sacha Tarkovsky
