Warning: Beware Of Trading Forex News And Fundamentals
In case you’ve been living under a rock for the last 50 years, you know this blog is about price action trading. However, what you might not know is that I pay little to no attention to Forex news and fundamentals. In fact, I believe that focusing too much on Forex news and fundamental variables has a negative effect on a trader’s performance. It is my belief that price is the ultimate “indicator” and that it reflects every variable that affects a market.
I know that many of you try reading numerous Forex news articles to “figure out” what price is likely to do next, or even try to “trade the news” each week, I know this because I get emails about it every day. So, in today’s lesson, I am going to explain to you why you are wasting your time when you follow the news too closely, and why you should stop this counter-productive habit right now.
“Buy the rumor, sell the fact”
There’s a reason why the saying “Buy the rumor, sell the fact” has been around on Wall Street for over a hundred years. Generally speaking, the reason is because the big players in the markets; the guys who REALLY make the market move, mainly trade based on their expectations of the future, NOT so much on facts that have just been released.
Thus, upcoming economic news releases are almost always factored into the price of a market. If this month’s Non-Farm payrolls report is expected to show that 200,000 jobs were added last month, then traders are currently trading the EXPECTATION of 200,000 new jobs and their beliefs on how THAT EXPECTATION will affect a particular market. Now, unless you are an illegal insider-trader, you won’t have access to the actual jobs number until after it’s released. What’s the point you ask?
Well, in short, the actual economic number is almost totally irrelevant. Why? Well, because by the time the number is released, all the big boys have already traded their beliefs of how the expected number will affect the market. For example, if our 200,000 Non-farm payroll number comes in at exactly 200,000 it could actually make the market go down, because everyone already bought into the market with an expectation of 200,000 jobs or more being a positive sign. So, if the number comes out at 200,000 exactly, no one with any clout is going to want to buy anymore because the number didn’t “surprise to the upside”, as the market analysts like to put it.
I am trying to explain to you guys that trading Forex news releases is essentially the same as gambling your money in the market. You never know how the market is going to react to any particular news release, and you can’t trade based off the logical thinking that “a positive number on the economy will make the market go up and a negative number will make it go down”…because everything is usually factored in by the time the number comes out! That’s why beginning traders and traders who focus too much on news find themselves getting chopped up every time they try to trade the news. In short, it’s a futile game that seems logical on the surface but really is nothing more than a roll of the dice at the casino.
It’s all in the price
As a price action trader, I believe that all fundamentals and Forex news releases are reflected and can be traded via the price action on a plain vanilla price chart. The main reason why I believe this is because news events and other variables are nothing more than catalysts that cause the market to move. But, HOW the market ultimately moves as a result of them is a different story, and this story is ultimately reflected via the price movement on a price chart. Thus, I am not concerned with the thousands of news events that can affect a market each week, because I know the biggest “short-cut” to reading and trading a market is by learning to read and trade its price action.
Price action is essentially its own language, and this language can be thought of as a reflection of what every market variable has caused the market to do, as well as which direction the market is most likely to move next. Sometimes, these reflections result in repetitive price action patterns that are high-probability predictive tools that can be used to gauge the future direction of a market, in this way, price action is actually the most accurate “leading indicator” in existence. So, it’s really quite simple; when you learn to read the market and trade it based off simple price action strategies, you are trading off of all fundamental variables via their representation in price action form on a price chart.
The psychological trap of believing that “more is always better”
More is not always better, and especially as it relates to analyzing forex news and economic data. You see, there is simply so much economic information available everyday on the internet that you can’t possibly make use of it all.
It’s a proven fact that traders who trade more often make about 1/3 less money over the long run than traders who trade less often. In other professions, “more” IS usually better, but because trading is mostly dependent on you being objective, disciplined, and trading with patience…analyzing increasing amounts of economic news variables will likely decrease your chances at achieving success as a trader because you will be over-analyzing, over-thinking, and as a result, over-trading.
Fundamental analysis is not a complete waste of time
Now, I’m sure I will get some flack over this article from some diehard fundamental traders who are totally brain-washed that they can predict what the market will do next from their $400 a month news service subscription (after all you don’t want to admit you are blowing $400 a month for nothing).
So, let me be clear, I am not saying that Forex news and fundamentals are not useful or that it’s impossible to make money by following them. But, what I AM saying is that you do not NEED them, and in my humble opinion they usually work to confuse and complicate a trader’s mindset. The effectiveness and practicality of trading solely off the price action of a market cannot be ignored. My goal as a trader and a trading mentor so to trade in a simple and clean manner, without confusing and contradictory news variables, economists, or market analysts telling me why the “euro is certainly going to fall off a cliff because Greece had a poor bond sale”…that crap just doesn’t matter to me because I choose to trade the price action depiction of the news variables, rather than some analyst’s interpretation of what they MIGHT do to the market.
However, I do need to mention how news releases can affect open trades…because I literally get emails about this everyday. So, for all of you wondering, here is my official statement on what to do with open trades prior to big news releases like Non-Farm payrolls or GDP…
If I am in a trade and up 2 times my risk or more and a big report like NFP is about to come out, 9 times out of 10 I am locking in that 2 times risk reward and letting the market due it’s “thing”. If I am in a trade that’s hovering near breakeven prior to NFP or GDP or ABC (ABC is not really a news release, that was supposed to be a joke)…I will usually keep the trade open and either take the knee-jerk reaction stop-out at my pre-determined stop loss level, or I will sit back and watch my trade rocket off in my favor and likely close out the position for a large gain shortly thereafter, or keep it open and trail my stop at my discretion. Now, if I am not in a trade about 24 horus prior to a big / volatile news release, I will generally wait to enter the market until after the release. If you want to know which news releases are “big and volatile”, check out the section on fundamental analysis in my beginner’s forex trading course.
What will you do now?
Now that you know why trying to trade the news or even concentrating on it too much can actually hurt your trading, what will you do? The ball is in your court. Are you ready to accept that trading off the news is irrational and pointless? Or are you going to hang on to your old news-trading habit and continue to try and “figure out” what is going to happen next? The truth is that you can never figure out what will happen next, all you can is trade the market with a high-probability trading edge and make sure your winning trades out-pace your losers, as well as not over-trade or over-leverage your account
Trading the market without any news variables influencing your decisions takes a huge amount of pressure and confusion off your shoulders. You don’t have to sit there biting your nails before Non-Farm Payrolls comes out anymore, and you don’t have to stay up all night reading some analyst’s forecast for the euro. Less information to digest means less confusion and the elimination of analysis-paralysis, A.K.A chasing your tail around in circles trying to “figure” shit out that simply can’t be “figured out”.
I teach my students how to read and trade based off the “pure” price action of the markets. I really feel that people who incorporate news and other fundamental variables into their trading decisions are “polluting” the raw and pristine “waters” of the market. Part of my core trading philosophy is to use the natural price action of a market to anticipate what the market is most likely to do next…not to “figure it out”. I know I can never know 100% for sure what is going to happen next in the market, however, after 11 years of trading it’s my belief that we can use price action to trade the market with a high-probability edge. Price action is the all-encompassing “key” to reading a market; it reflects all fundamental variables and gives us an effective and simple way to make use of them. Thus, we need to “listen” to a market’s price action because it is truly the heartbeat of a market and shows the hands of all market participants at any point time; we cannot ignore this fact. So, if you’re ready to shed the confusion and contradictory nature of Forex news and fundamental variables, check out my Forex Price Action Strategies Trading Course to learn more.
51 Comments Leave a Comment
Always on point with your insights.
I have been studying your articles for some time now and my mindset has been better ever since.
Thanks for your job. If everyone can dedicate them selfs into studying your free articles with they can make them selves better in a very short span of time.
Very helpful article.
Yes, The PRICE Is Right!
But, what if you have an open position, still near your break even point, and some fundamental will be released next hour, for example?. Do you close your trade?
That’s my only concern about fundamentals: I will close my positions if the fundamental is soon and I have a near to break even position.
Thanks, Nail. Good article. Del
At last the confusion has been cleared, thanks a lot Nial.
ye makes sense so a pin bar is forming in anticipation of good or bad news due the predictions(and this happens alot,spike before drop)and you start buying then the news is bad and boom thanks for coming,ye i can see news doesnt matter i guess…
Thanks for the speedy response to me email, and directing to the above “Warning”….from here on “News” will no longer be an element in my trading decisions. I will let you know how things turn out later.
thank for info..very useful
Good article. Thanks
Nial,thanks for all your great articles!
Thanks our leader, really which you learn us is fact in the market, today we have some keys to trade over the year couse of good person like you..
thanks Nial great article!
good advice, thanks for sharing this article Nial….
nice bit of sunday night reading Nial, love the way you remind us about the “big Boys”, and yes it appears Price action is really the truth !hellaluya.
Another great article. Your philosophy of KISS is certainly the right way to approach trading as it is very easy to get totally bogged down with all the ‘noise’ out there.
Thank you NIAL, Good stuff. The earlier we get rid of the habit of listening ” the news” the better it will be for us. THANKS & REGARDS, AMIN
Nial, Great work! when a trader buys into the wrong news he will usually end up getting stuck on the tip of a fakey candle, price is the best gauge…
I guess the adage “Let Fundamental’s guide your trade’s, but let technical analysis manage your trade’s” is more of a long term thing, too bear into mind change may be ahead, if not in the near term. Continued bad news, or good news will affect any currency. Just not a few piece’s of new’s in the immediate term.
yep! agree to all of it 1000%…:-) i do like reading news but i do not try to trade it at all…it is no use as Niall is saying…:-)…another great read..:-) thank you..
You r too generous..with these luccid explainations and fundamental truths about Price Action,..l must agree with Jude Fx,..HAPPY ARE YOUR MEMBERS(WHO PRACTICE WHAT YOU PREACH)..they have a future in Fx…cheers!
Thanks for good advice.
It’s funny that I was searching for a website that offers forex news. Thinking that it will help me with my trading. Foolish me…Thank Nial
Thanks Nail, The biggest losses I ever made trading were as a result of trying to trade the news. Price action is the proven way to go. Keep up the good work
Thanks Nial for your article especially in these days, I´m from Europe – Slovakia and political and economical news are totally confusing and like you say emotional drama – I need to confirm PA is my favorite choice.
What news? I don’t watch t.v.,listen to the radio or read news papers; it is word of mouth as to what is happening in the world. I will read information from my computer for example on making “Kony” famous.
Good advice. For those of you new to forex like me, stick with one mentor and learn their style of trading. When I learned how to water ski, there were 3 experts in the boat. I did not get up on the slalom ski that day. Too many experts were giving me advice on what to do. With a one on one instructor, I was skiing in 15 minutes the next day. I’m likening my experience water skiing to forex trading or learning anything for that matter..Too many cooks in the kitchen ruin the soup…
Thank YOU my dear ‘Prof” once again for this great information. please continue to bless our souls with these your NUGGETS.
Its really really an informative and useful article for the forex trader. It will be improved our thinking and will be make much careful to make any entry in the trading platform. So thanks Nial to share it and to show us the right ways to trade in forex market.
Quite agree Nial, Bang on again. if you don’t vae a Ph.D. in economics trying to use the news for trading is just going to totally mess you up!
Nice article. Thanks a lot for this useful and informative article. I’ve read almost your entire article and learn a lot from them. Keep up the good work; it always puts me in a good mood after reading your any article or commentary.
Very good article.
In a nut shell: Trade What You See and Not What Others Think.
This gives me more help than you can perceive,please keep
the focus on price action and teach me to follow your example
I have certainly been wrong on my reading and television
THANKS for your guideance Dennis
Great article! I have always held firm my disdain towards the business news and its political or corporate bias. Its just a huge distraction designed to put you off your trade and put money into the pockets of their beneficiaries. Why do you think Goldman call their clients muppets? There might be allot of information out there, but also allot of misinformation aswell.
That’s the thing with us traders or anyone who embarks on their own in any profession. We look for justification, for direction. We want to prove ourselves wrong, either to bank early profit or take an unnecessary hit.
That’s why monks practice Buddhism in a monastery. To generate a self discipline free from distraction, and generate self belief to such an extent that they become impervious to negative outside influence.
Knowing the schedule of news announcements is part of trading to protect oneself from surprises. I can’t be bothered reading anything beyond that. That news are often priced in before they occur is true. Traders may observe that many times the price is already on the way in the direction the spike will go at the time of the announcement.
Thanks a lot for this informative and useful article Nial, hope to implement this lesson in my trading, also wish to take the course from you some day.
Nice article.You are a teacher indeed as you were able to make your point clear.are your setups good for someone trading on a lower time frame like 15minutes and 1hour?
From my experience on a lower time frame like 5mins or 15mins,making 20pips on a consistent basis without much stress is possible if you trade after major FA.
I have noticed that Euro/USD & other currencies do not react well to news reports but S&P500, Nasdaq & Dow react much more predictably to the news.
However, I agree that the candles often foretell what will happen next and so are quite reliable “indicators”.
I think this advice is just cool for beginer traders. But we all know that developing or advanced traders dont actually try to predict any news outcome-they simply use the straddle strategy. The problem however, has always been slippage and sometimes whipsaw. But we all know how to handle this problem, dont we? I think using straddle on only high impact news releases is a comfortable adjunct to any other good strategy such as the price action strategy you teach, and this can be proven just by looking at the equity curve!
Thanks all the same for the article.
It has been my experience so far that, when I was new and un-informed (i.e no trading news/reports etc) and new very little other than just watching the charts, I was more successful, had more time and was less confused.
Then, I became experienced (??), and started to read the Forex news, from as many sources as possible, I stopped being successful, have less time and am more confused.
Nial, what you have just said, was one of those AHA! moments in life, in fact pure words of wisdom and you could not have said it any better, so Thanks.
NB. There is one advantage to being informed, and that is this led me to buying your course, so now I will once again a) have more time, b) become less informed/confused and c) become more successful once again.
happy are your members
hehehe, i know trade by news is very bad, but sometimes it’s very hard to keep our curiosity in the news. we think, maybe the news could affect market movements. :P but in the end, I realized that price action trading is the best.
Thank you Nail for reinforcing my confidence on “Trade what you see on the charts” and just that.
As I write this EUR will probably hit my stop loss and Nzd will hit my target.
Will see at the next 4 hr bar.
I have noticed that your price action set ups often occur
just prior to the larger impact news releases e.g this week the eurusd formed a bearish fakey on Tues night just prior to German Services data on Wednesday. It is almost as if the aggregate of global trader’s “anticipation” of a poor news figure manifests itself as a fakey or bearish pinbar on the daily candle prior to the news event. On this occasion, sure enough, the news WAS negative and the eurusd nose-dived (the bearish fakey playing itself out on the charts).
i like the cartoon, cool
Best Advise Ever – never try and figure out what happened, you can try, but guaranteed to fail. Acceptance of market momo, finding weakness in the market and trading off that = PA, go with the high probability strategy. Less is more, 1 trade with good reward, is all you need.
thanks for your piece of advice,is a good one for all trade to know.
it’s a nice warning for all we trader,thanks a lot.