Should You Trade the News With Price Action?
For those of you that have followed this site for a while, you will know that we are dedicated to helping traders become confident and successful “price action traders”. A common question I get asked about trading price action is; “what should I do with the news and fundamentals” I,e the economic news and trading announcements. Whilst I have discussed this in a few different trading lessons and videos in small parts, this article is going to outline exactly how Forex news, fundamentals and price action trading needs to be looked at together and how they all affect your trading. I would love to hear your comments at the bottom of this article about your different experiences with news trading or how you have made changes. You can either make a comment as a guest without logging in or sign up through social media/email address.
News Does Not Move The Markets
One of the really big common market myths is that market announcements or news is what moves price. Some traders never actually stop to think too far into this and they go about their trading and watching the news for the next movement, but this is a super important principle of the markets. A lot of traders are watching the news and reading up on all the next key announcements thinking that these economic releases are what is making price move.
The only thing that ever has and ever will move price is traders buying or selling between each other. Whether this is between large oranisations or small traders, it remains the same that price moves because of buying and selling or supply and demand and not because of news or announcements. This is why price will regularly go the exact opposite way to what a lot of traders expect it to after a large announcement. Traders are in control of the price and this is why it pays to learn how to read price action order flow and not the news or fundamentals because price action charts are basically a window into what traders are doing in the markets.
This is why price action can be so powerful and as is about to be explained; traders who are proficient at reading price action charts have a real advantage because they are reading a live chart of what traders are doing in live time.
Everything You Need is in The Price Action
To understand why everything you need can be found all within your price action charts, I first need to describe exactly what price action is;
Price action is the behavior of the market printed on your chart for you to read as it is formed, or in other words; everything that traders or market participants are buying and selling, printed out on your price action chart so that you are able to read it in live time.
Price action is not just simply pin bars or inside bars, etc., These are just patterns. Price action is absolutely everything you see on your price action chart in front of you. When another trader or organisation makes a buy, you are able to see that directly in your price action charts. When a key support level holds, you are able to see that in your price action charts.
Once you learn to read price action charts successfully and you build an edge with your method, all the clues are found within the price action. There is nothing that can be found or gained from looking or reading news reports. I often hear traders say things such as;
“I look at the Forex news to try to avoid the losing trades”
In other words; these traders are constantly following the news and picking/choosing and skipping the different trades they will take depending on the news and announcements. Why is this a HUGE NO, NO? Because there are many reasons that “spark” the market or give the market volatility and not just news or announcements. To have a successful trading edge means we must take every single trade that meets our edge criteria when it forms. We don’t know what trades will be the winners or what trades will be the losers, but if our edge is profitable, then overall we will come out profitable overall. However, if we start picking and choosing what trades we take, instead of sticking with the method and taking trades as we see them form, we are watering down the edge.
All the news and announcement information is shown in the price action and by concentrating on what the price action is saying rather than what the news is saying you can often find yourself on the right side of the market or quite often staying out of the market when you should be. A really good example of this was recently on a lot of the Great Brittish Pound (GBP) pairs where in Scotland they were going to have a vote to separate from the United Kingdom. Some traders watching this would have put the GBP on their no trade list, but for price action traders there was no need because all they needed to do was watch the price action and its behavior because as we know; the price action is the behavior of the market printed on our charts for us to read.
The GBPUSD made a huge drop and smashed lower over 500 pips in five days with a gap that really could have been nasty had any traders been caught in it. Price action traders would have missed this nasty gap and erratic market simply from looking at the price action and it’s clues and seeing that price was extremely volatile leading into the gap or in other words; from looking at the price action it became clear that there were no high probability price action setups to be made whilst price was so erratic.
This is just one example of where price action traders can use their skills to read the price action to either enter or avoid setups. Other examples or scenarios include such as when the market goes quiet and starts winding up tighter and tighter. A price action trader is not going to enter a trade in this type of market where price is moving into a tight consolidation wind up period and where price is not producing and key movements either way. You will often find this type of market is just before a large announcement is about to be made and the price has gone quiet waiting for a decision to be made either way, but price action traders don’t need to know the reasons, they need to read the price action. These are just two examples where traders need to focus on the price action because everything can be found in price.
Following the News Does Not Increase Your Trading Edge
This is the most important point about following the news; following the news or announcements does not help or increase your trading edge. If it did increase your trading edge at all, then Forex School Online would have a whole section of lessons devoted to teaching and helping traders, but the fact is not only does it not help, but it takes you away from where you need to be going.
Your trading edge is very important for you becoming and staying a profitable trader. I explain exactly what a trading edge is and how successful traders use them in the trading lesson here Transform Your Trading With a Profitable Trading Edge.
Basically, a trading edge is the edge that a successful trader uses over the market to come out on top and make profits. Where this is very different than most losing traders is that the losing traders are often focused only on the one trade right in front of them that they are playing at that time and not with their edge on the market. These traders often go from the one trade to the next without thinking about the bigger picture and the trading edge that they should be trying to trade within or trying to create.
No matter what method or trading system a trader may be using, it is simply impossible to have a 100% win rate. The successful traders edge might be a 60% win rate over the market, but this does not mean that for every 10 trades there will be exactly 6 winners and 4 losers. There will be different runs of winners, losers and break evens. For example; the trader may have 10 winners in a row and then only 2 losers, which is obviously a lot higher win rate than 60% for that small sample size of trades, but this does not all of a sudden mean that the edge has changed and that the edge is now a lot higher, it just means that over that small set of trades there was a run of winners. The next three trades may all be losers, but this once again does not mean the edge has dropped. The edge is worked out over many trades.
Successful traders know exactly what their edge in the market looks like, but they can never know what trades will be their winners or what trades will losers and break evens. All they can know is that they have found their edge in the market and they then pull the trigger.
A good example of an edge is this; Trader Joe only trades the Pin Bar at this stage in his journey as this is his bread and butter setup and he has got it down-pat on all time frames. Joe understands that no matter how good a setup looks they can still be losers and so he uses solid money management taught in the Forex School Online Members Courses. Joe has a proven and profitable edge on the market with his Pin Bar trading and whilst he may at times lose 3 trades in a row, he understands that having an edge is about making money overall at the end of the month or year, not every single trade.
Rather than helping your trading edge and increasing it, following Forex news and announcements take you away from where you need to be in your price action trading. When we follow the news and the different announcements, whether we intend to or not we form a bias on what we read or hear. This is super dangerous for our price action trading because as soon as we start to look at our price action charts with a bias, we stop making clear decisions and start doing things we would not normally do.
Examples of this are; we read a report about how the GBP is lifting interest rates and all of a sudden we are bullish on GBP pairs and even if the GBP pairs are in obvious signs of downtrends, our minds can tend to shut this out because we have already convinced ourselves the GBP will rise with the good news. What will also tend to happen is traders will shut themselves off to super obvious trades staring right in front of them just because of what they have read or heard. For example; the trader sees some sort of an upcoming report on the USD and so they don’t take a trade that ticks all the boxes that fit into their edge, even though they understand that price action is the behavior of the traders in control of the market. Other mistakes that can come include things such as traders start managing trades completely differently to their plans because of the news or they will risk more than usual because a “news report” has agreed with what the price action has told them.
Focus on Price Action & Your EDGE
Successful traders understand that no matter what the method or trading system, they will always have losses and so they don’t worry about having losing trades and instead focus on having an edge over the market that makes profits and this is exactly what you need to do. Successful traders worry about what they can control and look to increase their edge because that is what is going to increase their profits at the end of the year. You cannot control the news or announcements.There is nothing you can do about it, but if you want to be successful long-term, you need to have a trading edge that brings you out on top and makes you money overall. Inside the Lifetime Membership we teach members how to focus on price action and to learn to trade with an edge. If you want to learn more about this check out the Forex School Online Lifetime Members Page.