You can base your forex trading efforts on deciphering the potential impact of forex news items, analysing forex charts, or even using a combination of these two things. Regardless of what method you choose to understand the forex market, one thing that is inescapable is that without an analysis of fundamentals your view of the market would be alarmingly blinkered.
The main reason why some traders tend to forego forex news items is that it doubles up the amount of work they have to put into trading and also requires an in-depth understanding of the market. However, proper forex trading is impossible without the use of forex fundamentals.
What Are Forex News Items?
A forex news item is basically information related to any world event that can have an impact in the way forex rates behave in the forex market. This information would include everything ranging from economic indicators such as GDP, employment rates, inflation rates, and interest rates to other far-reaching indicators such as wars, political conflict, policy changes, and even natural disasters. Here are various crucial aspects of following news items in the forex market.
The Biggest Picture
Studying the impact of forex news items is known as fundamental analysis. Essentially, fundamental analysis is the study of the reasons why the market behaves i.e. evaluation of various things that can affect the market. As fundamental analysis is based on the concept of causality, the study of news items allows forex traders to get the macro view of the market.
Keeping track of forex news items is not that difficult especially since trading platforms became equipped with economic calendars. Economic calendars carry a lot of information pertaining to news related to forex. They usually contain schedules of news items and their expected impact on the market.
It is also possible to assess sentimentality prevalent in the forex market by analysing forex news items because they almost always result in affecting the cumulative view of all traders in the market. Often, sentimentality has more impact on the market than actual news which is why keeping track of this factor is beneficial for a trader.
It can be very tempting for traders to start blaming external factors such as the people behind the release for news items when their trades go bad. For forex traders analysing news in forex, it is important to take responsibility for their actions in the market.
For instance, every time a major news item is released, the market becomes extremely volatile which can result in unpredictable rate movements. It is the trader’s responsibility to take this volatility into account while placing his trades in the market.
Trading on the basis of forex news items is both extremely lucrative and extremely risky. Managing risks thus becomes a crucial aspect of trading in the market on the basis of fundamental factors. In order to manage risks, a trader has to take into account all contingencies and put in place measures to counter them.