Forex fundamentals and news are esentially economic factors that
can be understood as catalysts for price movement on the markets.
The school of thought known as ” Forex fundamental analysis”
basicaly says that you can predict future movement on the market
based on a market’s fundamentals or news data. I’m sure you think
now that you can simply study the economic fundamentals and news
of a matket and make predictions about it’s future movement based
on this data, but you will see that things are not quite that simple.
Ever heard the old saying: ”Buy the rumor, sell the fact”? This saying
has been on Wall Street for hundreds of years, and there is a reason
why. It’s because when market data is released, it typically has
already been factored into the market abd it’s influencebwill be
minimal once ut finally gets out. Traders and investors work based
on anticipation of what is going to happen in the future, and the
base for predictions are fundamental analysis and news data. Here is
where the ”buy the rumor” part comes in at. The tricky part is that
we can’t know exactly how much of any piece of impending
economic news has already had an effect on the market vs. What is
going to happen when that data is out. That’s why you should not
pay to much attentionbto upcoming Forex news data and
funfamental analysis, because everything that has en affect on the
market can be seen much more clearly and effectively from
analyzing tge price action on s raw price chart.
PRICE ACTION REFLECTS ALL FACTORS THAT AFFECT A MARKET
Perhaps the most importantthing you should learn from this lesson is
that the raw PRICE ACTION of a market can show you directly what
factors caused that market to move.one daily bar on a daily price
chart is the end result of economic variables that effected the
market during day. There are thousands of factors that can make the
markets to move on any given day, but trying to analyse these
fundamental and news factors doesn’t necessarily mean they are
useful or even relevant for short or mid-term Forex traders, even
though they are the catalysts for price movement in a market.
In many cases, when some big economic news break out, like an
FOMC policy meeting or Non-Farm Payrolls, traders and investors
make asumtions about the outcome for weeks or even months
before the actual event, so that when it happens it’s already factored
into the market and is practicaly a non-event. Usually the market
becomes more unpredictable during there big news events, but if
you keep your focus on the HIGHER TIME FRAME CHARTS like I do,
this unpredictability won’t have effect on you or your success. The
core of how I ”trade the news” is if there is a strong daily chart trend
in place, I am more concerned with that, and I will use any opposite
trend retraces that occur as a result of the news to look for PRICE
ACTION SIGNALS in-line with the daily chart trend.
In the chart below, we can see a GBPUSD daily chart and that on
December 18th the market surged higher shortly after the FOMC
meeting announcement. Now, the important point to consider here
is that traders and investors had been discussing this
announcements “potential” for weeks leading up to it, and that the
GBPUSD was ALREADY trending higher for a long time before this.
The announcement itself was actually somewhat positive for the U.S.
dollar as the Fed announced they were scaling-back their bond-
buying program, but what happened? The trend continued as usual.
The point is that you can’t stop a freight train…there are very strong
reasons why market’s trend, and one single news event is very
unlikely to change the course of the trend. Thus, this is why I ignore
the news except maybe to note when the volatile reports are coming
out so that I can look for a nice entry in-line with the daily chart
HOW IMPORTANT ARE ECONOMIC NEWS?
If you try to analyze all the economic news factores that are affecting
a market everyday, you will just end up stressing, second-guessing
you ”gut” feeling and become confused and frustrated, where there
is no need for that feelings to exist. A lot of traders think that all the
economic news are important, because if so many experts talk about
it they must be important, right? Well not really. The financial news
industry is huge and employes thousands of people , but it’s your job
to see if the economic data is useful to you as a trader.
As we already discussed, the price action in a market gives you all
the important information you need. You can stop reading economic
reports and listening to news with ”expert views” on the market,
because all that matters is absorbed into a market and reflected
through its price action. If you want to know how to interpret and
use the raw price action in the market, checkout my PRICE ACTION
TRADING COURSE for more informations.