Beginning traders are mainly focused on fundamental analysis or trading on news. There is no reason of getting into details of technical analysis, when you can catch the moment of the statistical data output and open a transaction in total compliance with the trend direction! And when the trend goes the other way and ruins stops, the disappointment comes and newcomers even have claims against a broker. The point is that this is only their fault.
Trading on news: learn the right way to earn money
The essence of the news trading boils down to two main strategies. The first strategy implies the placing of pending orders in either direction just a few minutes before the news publication. Sine, so far, there is no reliable statistical information, it is impossible to predict how the price will change. This strategy’s disadvantage is that with long stops there is a risk to lose most of the money and with short stops – there is a possibility that on volatility the price will close both stops before it takes the direction.
The second strategy implies the entrance immediately after the news publication in the trend direction. But it is not that simple: how to define the main trend beginning, but not either side fluctuations based on the investors’ uncertainty? And when the trend direction becomes clear, it turns out that the time has already elapsed, because the majority of traders open same-type transaction on news during the first 5 minutes, after which scalpers start locking in positions and so on. It should come as no surprise that slippages happen on such the market: a trader that also needs to cover a spread with its profits opens a transaction at a worse price, because it just has no time to place an order with a broker.
Let’s speak now about mistakes that all beginning traders make, trying to predict the trend direction at the moment of the statistical data publication:
Whatever the statistical data might be, it should be evaluated against the forecast, although previous periods should also be taken into account. A clear example – Facebook shares. The company’s reports for 2nd and 3rd quarters of 2018 were positive: there is the increase of the audience and the income growth in comparison with the same previous periods. But their shares have just crashed.
There reason: investors were expecting higher results and remained disappointed.
Undervaluation of correlated factors and of their power
At various points, some factors may have an influence with different power. For instance, the oil quotes are affected by such factors as the OPEC’s oil production statistics, geopolitical situation, the number of drilling rigs in the United States and the statistical data on the oil reserves in the US. The last two factors are local and, in the short run, may be critical for the price direction. In currency pairs it is better to evaluate macroeconomic performance of both countries.
For example, the change in the US discount rate, that affects the US dollar exchange rate. Since this event is highly predictable, investors put their expectations long before the release of the US Federal Reserve System. There is no sense to count on any serious changes in the exchange rate after the information release.
Mass media manipulations
Most often, in order make their decisions, beginning traders take some information from the mass media, analytical publications and forums, and market makers take some advantages of this. The informational manipulation allows market makers to create the picture they need, after which they just get easy money and close their own transactions against the market.
Always make careful analysis of the information and never by in hurry in order to avoid the above mentioned mistakes. It would be better not to trade at the moment of the statistical data or news output.