Forex Trading Tip - A Powerful Strategy for Using News to Make Profits
By: kelly price | Posted: 26th July 2007
In most instances following the news wont help you make money - but there is one way where it can help you and that’s the forex tip contained in this article.
It’s simple to use and apply and can be a very powerful weapon in your forex trading strategy.
Let’s look at this forex tip in more detail.
Today, there is a vast amount of news and research available and it’s all very convincing but you won’t make money using it to make trades off the views the bulk of it contains - it reflects the consensus and we all know the majority of traders lose money.
Why?
Because news is instantly discounted in currency prices ( in today’s world of lightening communications news is discounted in seconds) and is effectively “old news” when you come to trade it, as the market is looking to the future.
Many of the stories are convincing but dead wrong.
Lessons from history
Follow the news and try and trade it and you will end up losing.
History tells us that most important market bottoms are formed on extremely bearish news, and most important market tops are formed on extremely bullish news.
Consider this fact
Also for all the improvements in the quality and delivery of news - the ratio of winners and losers has not altered from 50 years ago!
So obviously knowing and trading off news stories (as most traders do) won't help you win.
There is one way that you can use the news to your advantage though and it’s as follows:
If you are looking at your charts and you see a market that has moved quickly and spiked to the upside,
chances are its being driven by the mentions of greed and fear.
Keep an eye on the news and if a bullish story fails to move prices higher be alert for a top and the same goes for a bear market.
Use these two contrary trading tools
You should not assume the market is overbought or oversold - you need to look for confirmation before trading - so use the % bullish and commitment of traders report.
There covered in our other articles and will tell you when the market is ripe for a turn and you can then look for news stories that don't push prices the way of the consensus and look to take the sort side.
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Tags: greed, confirmation, instances, news stories, contrary, improvements, bear market, consensus, old news, currency prices, trades, mentions, forex trading, trading tools, trading strategy, winners and losers