Different macroeconomic factors influence financial markets. Fundamental analysis experts examine these factors and base their forecast of currency directions on economic indicators, statistics, reports and news.

Being quite a controversial type of trading, news trading is a popular way of earning on Forex market.

Although news definitely forces the market, it may cause unpredictable consequences.

New trading has certain drawbacks:

• information overload;
• necessity to select right news from the news feed;
• unexpected changes (events seemed minor at first glance may develop crucial importance, and conversely);
• changes in data importance depending on global economic situation.

A trader addicted to fundamental analysis face lots of new information every day: planned reports, statements of policymakers, research notes, announcements of political events and rumors…

Anyone who chooses to trade on news should learn to analyze links between economic events, consider psychology of the market and be very careful. Trading on news may easily lead to a trap. The market may move in one direction on the back of expected data and suddenly jump to the contrary after its release.

Information overload is another reason for a headache even to an experienced trader. To select useful information from a mix of different and sometimes contradictory facts is not that simple. Two mistakes are common: a trader either tries to embrace the boundless, or focuses on a particular news aspect and forgets about the others.

Which data should be based on? According to experts, the most important data is information related to unemployment, inflations, GDPs, percentage rates, indexes of consumer and producer prices, production output and retail sales.

Intraday traders are definitely interested in news trading. Normally, the release of important economic or political data cause well-marked short-term price movements. Market volatility may increase and bring profits to short-time traders. Experienced traders say that knowing when regular releases are made and which of them are most important may lead to a success.

However, to avoid risks, many traders prefer to suspend trading at the moment when the data is published. Major traders reputedly know about oncoming market reactions in advance and reap benefits while ordinary traders are able analyze news only post factum…

In any case, it is better not to ignore news. Firstly, there are investors who successfully combine techniques of fundamental and technical analyses (still there are some who repudiate both), and secondly, economic news fosters intellectual development.

Added by Alexey Skachilov,
InstaForex Clients’ relationship manager