Forex traders have always debated what is more important: the technicals or the fundamentals. The technicals refers to the price action shown on forex charts. The fundamentals refer to economic news and data that may affect those prices.
Of late, the technicals proponents have gained much the upper hand on the fundamentals crowd. There is now a case that can be made for completely ignoring economic news events and just focusing on understanding price movement, as illustrated by charts.
However, this “all or nothing” view is not mainstream and can be quite limiting. Certainly it is to your benefit to learn forex news to some extent. At the very least, you must be aware of forex news that can drastically change currency prices.
Too Much Information for Any One Person to Understand
In today’s 24/7 Internet world, the amount of information available to the average online forex trader is virtually limitless.
This too much information reality makes learning forex news a challenging feat. Any foreign currency exchange trader who tries to keep up with every single report that hits the news wires is likely to end up in an insane asylum sooner rather than later.
Many successful forex traders thus concentrate their news-watching hours on a few key economic reports. For example, if you trade the major pairs, which all involve the U.S. dollar, you may want to keep a sharp eye out for:
- Federal Reserve Meetings
- The Non-Farm Payrolls Report
- G-7 Meetings
Many other news events are, of course, taking place at any given time, but those are three big ones that no currency trader should ignore.
One way to manage the flow of forex news hitting the wires is to use an economic news calendar. These calendars contain a schedule of upcoming news events that could affect currencies, and are available at places like Bloomberg.com and MarketWatch.com.
Learning Forex News Can Pay Off Huge
Very few forex traders are able to synthesize the vast amounts of data running through the FX markets into a “thesis” that makes sense—and, more importantly, makes dollars.
Despite the difficulty of forming such a unified view of where you think a particular economy and its currency are heading, the rewards for solidifying such a stance can be tremendous. Therefore, every FX trader should seek this level of mastery when they start to learn forex.
After reviewing all the forex news you can get your grubby paws on, it may be wise to boil things down to the basics so as to come to your thesis or main idea.
The basics of forex news always ask the following two questions: Is the economy of this country getting better or worse? Are interest rates in this country headed up or down?
All the study in the world is intended to comment upon those two main factors: the health of a particular economy, and the interest rates in that economy. Those are by far the two most important things that can change the value of the currencies that you’re trading.
The huge pay off for all this study can come if you spot a currency that is headed for long-term appreciation or depreciation. Due to the leveraged nature of forex trading—you are borrowing money from the broker to purchase a larger position—hitching a ride on a currency that is headed one way or another can be a very profitable ride indeed.
In this case, unlike in school, doing your homework can earn you more than a good grade, it can earn you cold hard cash.
When Learning Forex News, Look Beneath the Surface
The forex markets hate and punish arrogance. For example, when a forex trader thinks that the market “has to” respond a specific way, after a specific piece of news comes out. This type of “it’s a given” assumptions will make an ass out of u and me, no doubt.
When learning forex news and how to analyze it, look beneath the surface of what the news seems to say—because the impact on the FX markets could be something totally different than the appearance. Plan truth is, in FX trading, an elusive thing.
The classic example of this would be when a negative news event pertaining to a currency hits the wires, then major banks, hedge funds, and even governments use the resultant selling frenzy to build into a long position. Thus price actually rises.
When discussing news that affects currency prices, you must never take the news at full value, nor expect the markets to act a certain way because they’re “supposed to.”
Be Careful Trading the News
“Trading the news,” meaning sitting at your computer listening to an economic news event and then pressing the buy or sell button, can be an extremely treacherous endeavor. The markets often react in a violently unpredictable manner during news events.
Sometimes it's a good idea to completely avoid a forex trade during major news events when you’re first starting out trading forex. Even veteran traders may want no part of the overheated action that occurs when news is breaking.
If you do choose to trade the news, you need to be intimately aware of “the consensus expectations.” News is never really bad or good in and of itself so much as news either conforms to or denies the expectations of the market.
Never trade the news without knowing what the consensus numbers are.
The Real Forex News Is Price
Technicals traders who downplay the importance of forex news have a lot to say for their position, because the real news in FX trading is price action. If USD/JPY has jumped 100 pips today, that’s bigger news than what the Japanese Finance Minister said today.
The FX markets express buy and sell demand vividly and instantaneously, so in effect when you are watching prices move on the charts, you are watching news happen.
In forex trading, currency prices are the news. Those red or green candles, when they grow and shrink and then grow again, are the forex news you can’t afford to miss.
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