Don’t Trade The News – Trade Price Action Instead
In the first few years of trading, many traders get stuck in the “trap” of trading the news and putting too much emphasis on fundamental analysis. Trying to figure out what the market will do next as a result of the next major economic report seems like an obvious and useful thing for a trader to do. However, you might be surprised to know that traders who focus too much on the news often lose money because price tends to go the opposite way of what the news implies.
Anyone who has watched the EURUSD during the monthly U.S. Non-Farm Payrolls release knows that there is very often a “knee-jerk” reaction when the numbers come out and that very often price will move counter to what one might expect based on the numbers. Many traders think they are getting some sort of “advantage” by studying the implications of various economic reports like NFP and others, but price knows no advantage and there’s no distinct advantage to anticipating or trading the news.
If you are basing your trading decisions on what you think will happen after an economic report comes out then you are really just guessing and really have no better chance at a winning trade than if you were to flip a coin. It is very easy to develop this bad habit if you do not have a clear understanding of why trading the news is dangerous and essentially pointless. Let’s discuss the reasons why trading the news can be one of the worst things you can do for your trading account…
Buy the rumor, sell the fact
First off, markets move a lot more in-line with what the expectations are for an upcoming economic news release rather than with what the actual news release implies. Meaning, because traders trade their beliefs about upcoming news events, often when the actual event or news release happens the move is either over or ready to come roaring back in the opposite direction than the actual news report implied. This is why you may have heard the term “buy the rumor sell the fact”.
However, it is very easy to get sucked into the trap of fixating yourself on one specific economic report that looks like it could really move the market in a certain direction. Once you convince yourself that what you expect to happen based on a news event is what most likely will happen, you have basically dug your own grave for your trading account. When traders get into this game of “convincing” themselves that they know for sure what the market will do based off a certain news release, they inadvertently change their perception of the risk associated with the trade. Thus, they have little reason to practice proper money management…the more you convince yourself that you know something will for sure happen in the market, the more likely you are to take a bigger risk.
The contrarian nature of markets
Prices in most markets are inherently contrarian. In layman’s terms, this means that usually price will do the opposite of what most amateur market participants think or feel will happen next. This is why many beginning traders have so much trouble and lose all their money and then some. You really need to understand that often when it looks “safe” to enter a trade, or a market is breaking to new highs or new lows, this is the exact time the amateurs are getting on board because they feel “safe” about entering. They are trading from emotion because have they have no real game plan or trading strategy.
Price action will tip you off when a move has run its course or when the dominant trend is ready to resume. There are specific price action strategies that I demonstrate in my forex trading course that will give you the edge you need to survive and thrive in the contrarian world of forex trading. I can tell you from personal experience that if you try to trade based off emotion with no real education in price action you will end up buying tops and selling bottoms, which is what losing traders do. Markets are by nature extremely contrarian and the only real way to read what the charts are telling you is by analyzing and developing a trading method around price action.
Price tells you everything you need to know
You can avoid the pitfall of “trading the news” by remembering that price action reflects everything that is affecting a market at any given time. Price action will show you the direction a market is more likely to go before any economic report is released, that is if you know how to read and make sense of a market’s price action. Price action contains all the information you need to be a successful Forex trader; you do not need to over-analyze every single economic indicator and pull your hair out with frustration from trying to figure out what will happen next. The only thing you really need is price action analysis; I have been consistently profiting from price action for years without even so much as a thought about economic news releases. If you want to learn how to read and trade solely from the market’s price action, my price action trading course will give you specific setups and a unique way of looking at the market via price action analysis that will allow you to make your trading decisions based off the indisputable price data reflected on the chart.
The course is designed to give you the knowledge you need to trade the markets. We have all heard the acronym KISS; keep it simple stupid, well this is extremely relevant and applicable to trading. There is so much misinformation out there and so many people trying to sell you crap that you do not need to be a successful trader that it’s not surprising most traders lose money and end up quitting. Price action analysis will be you’re inside-guide to the markets, often over looked and under-used, it really is all you need to understand and trade the markets effectively. Stop losing your money and giving yourself analysis-paralysis by trying to keep up with every little economic news release. Instead, get yourself a solid education in price action analysis and it is all you will ever need to unlock your potential in the market.
9 Comments Leave a Comment
Thanks Nial ..This is a great article for new traders like me who gets trapped in bad habit of predicting the market move and instead teaches us how to keep ourself focused and disciplined by trading market based on other traders move using price action.
Excellent article. We must keep in mind that.
Great article. In the last months of 2008 and the middle of 2009, the dollar tanked, no matter what the news or numbers turned out to be. So many time you see the price come right back to it’s starting point after a large news move.
But you can’t ignore them either, ‘so whatta you gonnas do?
This article is pure gold that all traders, new and old should take a moment to read. It always made me sick to the stomach when I watched a video with some guy trading and ranting on about a news release that ‘could have’ the potential to move the markets. I can never take such people seriously who attempt to make a living off some information that is based on hersay. Price is king and its the only real truth when it comes to trading the markets.
I would want to say a big thank you to you Nial for such a generosity in releasing this eye-opener of an article, all i could say now is more power to your elbow, for me the article is worth $1000000,sound incredible! yes i know what i mean.
Hi, Nial, your site enhance my knowledge on forex trading a lot. You explanation are excellent, make me understand what Price Action is… once I completed my study, will join your community. You ROCK… SOLID ROCK.
Thank you Mr.Fuller
your explanations are detailed enough,so that I’ve
decided to become a member of your community on forex
Solid stuff Nial, I am in a trade at the moment using price action and it is paying off so far. This method is simple and effective. I will be running this for at least a month before I start using real money. Do you have a skype name please?
First, i would like to congratulates for having this true informative website and wish you will be always be there and won’t get tired to give a true support to a new trader like me, i read a lots of forex website and books but its only makes me confused about the teachings and ideas they give, i think yours is simply logically true about the price action.
Thanks a lot,