The Truth about Forex Fundamentals and Trading the News
Forex news and Forex fundamental variables are topics that many traders email me about each week. They usually want to know if they should pay attention to the news as it relates to their trading and (or) how to incorporate fundamental economic news variables into their trading.
The fact of the matter is that as a price action trader I believe that all fundamental variables are reflected in the price action on a plain vanilla price chart. The primary reason that I believe this is because price action is the final result of all catalysts and participants in any financial market. Forex news and other fundamental variables are simply catalysts that cause markets to move, and since price action trading involves analyzing price bars on a “naked” price chart, I am primarily concerned with analyzing the end result of the news: price movement.
Now, there may be some diehard economists and fundamental traders
who will disagree with what I am saying here. So, let me make myself clear, I am not saying that news cannot be used or that fundamental traders can’t make money in the markets. What I AM saying, is that the effectiveness and relevance of price action trading cannot be disputed. As price action traders we want to make our trading simple, and in order to simplify we remove the news, economists, and so-called market gurus. Let’s dissect this issue further…
Over-analyzing Forex fundamental variables…
Many traders over analyze the news and this ends up confusing them and causing them to second guess themselves. There are just too many variables each day as far as news and fundamentals are concerned for any individual trader to have enough time to make effective use out of them. You will literally burn your eyes out trying to read all the economic news that can influence the Forex market each day. The point being; you can bypass all of this unnecessary over-analyzing by learning to read a plain vanilla price chart. You see, fundamental news is simply a catalyst for price movement, so, it only makes sense that we trade based off the final result of all Forex and economic news; price action. We will discuss this more in-depth in the last part of this article.
Also, most retail traders do not have access to the type of “in-depth” and “inside” information that would allow them to take advantage of an impending news event. Furthermore, paying to get access to “up to the minute” economic news is basically a huge waste of money. It’s only going to introduce more variables for you to over-analyze and take your focus off the price action of the market.
Why trying to predict price movement based on the news is like gambling…
You cannot predict what the market will do based on the news. The market often reacts counter to what you would expect based on a particular news release because of the issue of “buying the rumor selling the fact”. Markets operate on traders’ / investors’ expectations of the future, so when a news event actually happens, price will often move in the opposite direction to what the implication of the news event might be. This is because traders have traded their expectations already, and so once the news is out there is nothing left to expect from that particular piece of news.