There are basically two types of analysis separated by traders: fundamental and technical. Although both forms of analysis are remarkable in their own way, they face their problem. In this article, I will focus on the fundamental Forex analysis problem.
The fundamental analysis focuses mainly on the general state of the economy, interest rates and monetary policies, which are essentially the economic conditions of the country. It is always good to know how the markets and the economies of the world move because they greatly affect the financial markets but relying solely on fundamental analysis of market trading such as Forex would be disastrous. By the time the economic news was received, there were other people already knowing that it had acted on it and the result would be reflected on the charts.
Economic news generally tends to the fact that it does not always work in some key data, as some countries sometimes want to show that they work well in good times and good times during bad times associated with political factors. It will not be 100% trusted and can serve as a complementary guide to your technical analysis.
Usually when news is released, everyone will have the same idea about the markets and thus create a herd mentality. Since everyone is talking about buying, the tendency may also be to join the murder ride. But those who knew what was going on chose to stick to what they always believed and that's what the planner tells them.
An informed trader will use long-term fundamentals with trends identified with technology to establish trading bias. Short-term news such as nonfarm payrolls (NFP) may often develop unprecedented market reactions, creating false signals that mislead traders that there is a change in market sentiment. Only after the dust settles can one see the direction in which the market is moving.
Since the basic Forex analysis only provides a complete picture of your trading decision, it is always recommended to combine technical analysis to help make decisions. If you are not sure how news affects your trades, always look to avoid trading while releasing highlights and wait for a few days while still keeping an eye on the market before you decide it is convenient to trade again.
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