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Reading News Without Analyzing

 

Knowledge is power, and knowledge is directly related to information. Many Forex traders regularly scan the newswires in order to pick up information which can allow them to make prudent investment decisions. However, there is a difference between watching the news and analyzing it.



Watching the news without taking the time to analyze what one reads or sees is a common mistake that many Forex traders make, and the losses which result from this error can be astounding. To understand why many traders make this mistake, it is important to know a bit about information and its distribution in the 21st century.



Much of the information we receive today comes from only a few sources. In most cases, these sources will either be the government or agencies which are connected to the government. The problem with getting information from these sources is that the people giving you your news are often trying to promote a specific objective.



This news may be intentionally used to manipulate traders into making specific decisions, decisions which will often empower those that they get their news from. To become a truly skilled forex trader, not only must you read the news, but you must also be able to "read between the lines."



In many cases, a public official will make a specific statement about a currency, and traders will consider the statement a forecast on the direction that the currency will move in, and will invest accordingly.



For example, if the president gives a state of the union address, and he mentions the continuing fall of the dollar, some traders may decide to invest in the dollar from a bearish or bullish perspective.



The reason why traders make their decisions based on this information is quite simple: if statements about a currency are made by government officials, then these statements must be true, since these officials often know more than the general public.



While this line of thinking may seem logical on the surface, it is ripe with a number of misconceptions. First, no person, whether they are the president of a country or not, is a fortune teller. They cannot predict the future with any degree of certainty.



While their statement may be correct, it may also be incorrect, and to risk your money based on a statement is incredibly stupid. A smart investor will always make decisions after conducting a large amount of research, and will read between the lines when analyzing the newswires.



News Sources can often manipulate information in order to benefit themselves. Jim Cramer, who is a well known investor, caused a controversy about a year or two ago when a video was released on the Internet of him revealing various secrets related to investing. He stated that the prices of certain investments could be manipulated by hedge fund managers in a number of different ways, including publishing a paper in a well known investment journal which criticized the stock's performance. Once such article is released, those who read it will spread the word around about the stock, and the price of the stock would fall as people begin selling their shares.



The ingenious thing about this is that the source who released the "news" which is related to the stock could take up a bearish position before the news is released, and could make a huge profit as other investors begin selling based on the "news" they received.



While stocks are a bit different from currency trading, the same rule applies: be wary of where you get your information. It is always wise to cross check your data from multiple sources which are unrelated to each other so that you can get a bigger picture of the right investment move to make. While this may take more time, in the end, it can save you a lot of money.



Another problem which arises when getting your data from the mainstream news is that information which one forex trader considers to be bearish may be bullish to another trader. When it comes to analyzing the market, it is critically important to keep things simple.



Because forex trading often takes place in an environment where things move very quickly, it is best to make use of tools like point and figure charts, since they are capable of providing a lot of data which is necessary for traders.



Point and click charts are basically tools for technical analysis, and they allow investors to make decisions much more rapidly than by simply reading the news, and you are analyzing things from a technical perspective as opposed to relying on the statements of a government official, who may or may not be correct.





Read Next: Disastrous Trading Mistakes



 

 

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