Fundamental factors in the exchange market can be compared to airflow. If the pilot doesn't know everything about them, he won't be able to navigate a plane from point “A” to the point “B”. To control the airplane marking lines are not enough and for successful news trading not only technical levels are needed, but also the understanding of a global macroeconomic picture.
Unfortunately, many traders don't take into account hidden pitfalls in fundamental analysis and, therefore, suffer many failures in a row. Today we will discuss mistakes which are made by investors in the economic background analysis and news trading.
Mistake №1. Trading the forthcoming news.
So, most of the traders beginners are interested in news trading.
Seems, as easy as falling off a log: you look through a news calendar, compare projected value with previous and open a position in this direction. But, unfortunately, not everything is so obvious. Even if the expectations of the trader are met, it isn't always possible to foresee the market reaction to the news release.
Often the publication of Forex news is followed by additional, more detailed data which wasn't mentioned in the economic calendar, and sometimes the release is followed by comments by authoritative officials which reduce its importance in the market. Such events after the news release can make currency behavior extremely illogical, and the trade unexpectedly unprofitable.
Anyway, any important event is followed by volatility growth, which beats out inexperienced players on stop-losses. Buyers and sellers suffer both. Such swing often precedes forming of the strong trends generated by the important news. That is why opening the position to the announcement of news is integrated to high risks.
Mistake №2. Enter the market right after the news release.
Another common mistake is to enter the market right after news releases.
If the initial market reaction meets expectations, the traders considering themselves quite careful, often try to jump on a foot board of “the leaving train”. A problem that such movement can be short-lived because at these moments the amount of liquidity is still small.
While large players enter the market, the direction of movement can be easily changed and the trader risks losing all the trading capital. It is recommended to wait for volatility lowering and the stable direction of movement forming after the news release. Such approach allows managing existing risks more effectively. The new trading becomes more predictable.
Recommendation №1. The best strategy for trading the news.
The most effective strategy for trading the news is considered to work on market expectations. It is the first part of an old kind technique “Buy on hearings – sell on the facts”. It is based on the statement that the currency always moves towards the forthcoming publication. If it is expected the release better than the previous, the currency will become stronger, and vice versa. It is important to jump out of the market before a risk release appears – then you will be able to scratch the surface and to get the best of the best.
Recommendation №2. Think big!
Medium-term and long-term trends are, as a rule, created under the influence of expectations of changes in monetary policy. Thus, it is important to understand that the announcement of a rate increase or reduction can not lead to a noticeable change of currency rate: often strong movement falls on several months, preceding this event. To manage to earn on this breakthrough, it is necessary to watch closely a flow of news statistics and comments of politicians. In most cases, the market is warned in advance.
Recommendation №3. The couple is always two.
Also, you shouldn't forget that the two currencies are always involved in couple traded in the Forex market. It is important to keep up not only with the statistics from one country but to compare conditions of two economies.
The fundamental analysis is one of the most competent approaches to search the trading opportunities. Follow basic “safety rules” and your chances to succeed trading the news will increase your profit!