Wednesday, June 27, 2012


Consider this:
50 years ago around 90% of traders lost all their money and this figure remains the same today 90%.
This is despite the huge range of new tools and breaking online news that is available to help traders - the ratio still remains the same.
The reason for this is an important part of your FOREX education:
Markets move to the following equation
Market fundamentals + Investor Perception = Price movement.
We all see the news but it is the way all the investors interpret it that is important.
The market is a discounting mechanism and all the news instantly is reflected in the fundamentals.
If you see experts talking on the TV or writing stories, then this information is discounted - The arguments may sound convincing, but that is what the media does sell stories.
The experts who put out stories are not traders and their more often than not dead wrong.
If it was easy to trade off news stories, a lot more traders would make money and the fact is they don't.
By listening to the news and acting upon it you will lose.
Let's go back to the equation:
Market fundamentals + Investor perception = Price movement
As the market is instantly discounting news we can simply assume all fundamentals and news is instantly reflected in price action.
All you need to do is follow price action and focus on investor perception of the fundamentals.
This makes a technical approach ignoring the news the best way to trade the markets.
As investor psychology is constant, repetitive chart patterns can be spotted and acted upon.
If you try and use the news you will simply lose.
Consider the fact that markets collapse when the fundamentals are most bullish and rally when they are most bearish and you will see that trying to act of the news is a waste of time.
How many times do you see a market ignore the news and go the other way?
It happens all the time.
Will Rogers famously said:
"I only believe what I read in the papers"
He was joking, but many FOREX traders actually do believe what they read and think they can trade off it and lose.
The market is a discounting mechanism and trying to trade off news stories will most likely see you fail.
So if you want to make money trading FOREX keep in mind this important bit of FOREX Education
Understand the past, think in the present and look to the future.
You can do this by simply following technical analysis and see future trend changes people listening to the news will never see.

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