Whenever you get into the biome of trading, be it forex or the stock market, you always hear the terms technical or fundamental analysis. Both of these terms hold their value.
You might be an expert on reading the charts and doing your technical analysis. But, once a piece of important news hits the market, it may tilt it in a direction that you were least expecting.
The right balance between technical and fundamental analysis is key to successful trading.
Relying heavily on just one or the other may prove insufficient in the majority of cases. In short-term trading, like day trading or scalping, you might not need fundamental analysis as much, but it may still be important.
What news should you look out for?
Most people think that every single piece of news might affect the market, but it’s the opposite. Only a fraction of economic news will move the market and get the trader’s attention.
You might see these types of trends which each news drop. The first one is simple; there is no movement at all. There might be some small pips, but nothing major.
Secondly, an upward spike gets your attention, but as soon as you invest, the trend flips.
Now it’s rallying in the opposite direction. Thirdly, you see a spike and then it starts a trend in the same direction. With three of these outcomes, you might wonder how to predict the market trend. You can never be hundred per cent sure. All of us are linking pieces to gather clues for what will happen.
Some of the news that is important for the forex trader is as follows:
- High-interest rates
- Increasing unemployment
- Business sentiment
- Inflation or recession
- Trade balances
- The flow of industrial production
- Retail sales
- Manufacturing survey
How to trade with the news?
Now we know that certain news categories change the flow of the market. Now the question remains how do we trade with news alone?
The answer is not quite simple. Why? Because news makes the market very volatile, and trading during high volatility is risky. You can let the market settle and then use technical analysis to predict the flow of the market.
You can use a pullback strategy, head and shoulder, overbought and oversold, and breakout and breakdown strategy.
If you know any good strategy, you can easily read the charts and execute your trade.
To be a good and well-sorted trader, you should know how to do your technical and fundamental analysis. Without either, you might be lost on what’s going on.
The influence of news may linger on for a few days, so you do not have to rush things. It’s better to take your time and then take the trade when you are certain that you can make a profit.