With so much news related to Greece and its economic crisis and its large accumulated debt and the constant cascade of economic data that make the markets a roller coaster of emotions (practically daily), it can seem overwhelming to keep up with all the news. The question is…
What should a trader do?
My solution is simple and highly effective; I completely ignore all that. I just don’t let that “noise” affect my decision making and the truth is that it is a stress-free measure. And when you trade without stress, the results improve. This that I am mentioning to you may be the key to keeping your trading account safe.
Trade now and not in the future.
Have you noticed that many times a pair of forex moves in the opposite direction to what you had thought when that economic news came to light?
There is a reason for this, and that is that people are the dominant force in the markets, and people trade in the markets based on their beliefs or expectations of the future. So much so, that once the economic news or an economic report fits with what they had anticipated, the movement based on that thinking has already taken place. This is where the old saying comes from: “Buy the rumor, sell the fact”
The price action is a reflection of what is happening right now in the markets, and it gives us clues about what may happen in the future – clues with possibilities to capitalize on our investment. Knowing that people tend to trade based on their expectations of future events logically tells us that once that future event approaches, it will not affect the market the way they think. The fact that I want to highlight is this; It is not worth trading based on how the news may perhaps affect the market in the future when in reality the market is affected – most of the time – before it happens (now) and we can see that effect in the market through price action.
Therefore, we want to trade “now” in the markets, instead of trying to guess how possible news may influence the market in the future. As that future approaches, that news will already have influenced the price and there will be another waiting on the horizon and for which there is already speculation. If you try to trade during the development of a news item, you will be late for the “party” and you will always be turning a vicious circle. So I stay focused on price action, which is what reflects what is happening in a market.
A little gold nugget, since you may be wondering: what about news or random events like surprise news about a drastic change in interest changes or a piece of news related to a natural disaster, etc? Good question! but since we have no prior notion about these events, we cannot think about how they will affect the market in the future, so all we have at our disposal is the price action that will be reflected in a graph. once that event takes place. Again, price action “wins” and trading in the “present” makes much more sense. In these scenarios, you can wait for the event to unfold and unfold and watch the markets for objective price action patterns.
How holding on to the news can wipe out your trading account
Traders become obsessed with the news and looking at the economic news calendar. They become trapped in a “black hole” looking at the economic news from their broker or any other site and trying to find out what the result of the news will be, which puts you in a horrible mental position and is counterproductive to your trading.
Once you convince yourself that THIS or THAT is going to happen based on an economic news announcement, you have placed yourself alone in a destructive position for your trading account. All logic and objectivity will start to be conspicuous by its absence when you “want to know for sure” what the market will do in the future.
Therefore, the key to the success of any trader is to remember that trading is a “game” of probabilities, not of certainties, and trading with a 100% objective and interpretation-free methodology. When you trade in this way, you can naturally manage your risk and you can follow a trading plan because you remind yourself that any trade can be a loser and that you never know what will happen with “certainty” at a future time.
On the other hand, when you trade with the thought that you “know” what will happen in the future based on news or event, there will be nothing to stop you from leveraging more and increasing your risk levels. That is the main reason why ignoring the news can save your trading account.
Ignoring the news eliminates the fact that you can convince yourself that you know “for sure” what will happen in the future in the market. It also removes the confusion from you and significantly simplifies your trading process.
The more we focus on price action, risk management, and the psychology of trading, the closer we are to having the right mindset in the markets. Often, the biggest obstacle to a trader’s success is simply walking away and ignoring all the information/news that you may be exposed to every day. You want to trade based on having the right mindset and the right approach. Trying to analyze any news and find out how it may or may not affect the market is a useless game that will ultimately burn your trading account.
To start on the path of doing “pure” trading, focused on price action, money management, and psychology applied to trade, you can take a look at my Coaching Program in Trading.