While all traders are pretty much on the same page when it comes to technical analysis, it’s not the same for news and fundamental analysis.
In this blog we are going over the two point of views surrounding the benefits of following news when it comes to forex trading and then giving our two cents on the matter at the end. So let’s get right into it.
Argument against keeping up with the news
One main argument against this is that news can be overwhelming and confusing.
This effect manifests in the way the market reacts to important bits of news that is released. Often times when an important financial report is released it can be observed that the market goes through a period of great volatility in which there is no clear direction. This is a dangerous time to trade and smart traders often choose to stay away from the computer at such times only to join the market once a trend has formed.
This is the power of news and the uncertainty it can cause. There are no set rules for how a financial market should or will react to a financial event. Traders have their theories and that is what causes confusion in the market because ultimately the market makers are the banks and hedge funds.
So those who advise against following news think it’s unnecessary stress and that technical indicators are enough to help a trader make informed decisions with their trades.
Argument for keeping up with the news
The counter argument to this is that news can sometimes help create trends or confirm a sentiment as well.
The way this works is that often when the bulls and bears are having a standoff, a piece of news will confirm the view of one side by giving a clear indication of a currency’s value dropping or rising.
This means that being aware of this series of events will benefit a trader because they can get in on a trend at the right time and maximize their profits.
The other reason why it helps to be aware of the news is because the market makers will most likely react to it. Big banks even buy the news and have full teams to analyze it and form their trading strategy.
This means that before an important piece of information is due to release, you can see the banks and investment funds preparing for it. If you analyze the market before important financial data is released, you will be able to decipher what the market makers are thinking.
Based on these arguments one can conclude that there is more to be gained from following news than ignoring it altogether.
If you are careful and watch the market closely, you will be able to tell whether or not you should participate so you can save yourself from becoming prey to any moments of confusion and steer clear of random volatility.
You can find out about important news sources here if you like.