2Bull Forex Blog

The rise of the internet has seen more news and FOREX education than ever before become available to traders and it’s available instantly, but it won’t help you make money.

In fact if you try and trade by utilizing news stories you will lose and a simple fact will explain why:

Fact:

Consider this:

50 years ago around 90% of traders lost all their money and this figure remains the same today 90%.

This is despite the huge range of new tools and breaking online news that is available to help traders – the ratio still remains the same.

The reason for this is an important part of your FOREX education:

Markets move to the following equation

Market fundamentals + Investor Perception = Price movement.

We all see the news but it is the way all the investors interpret it that is important.

The market is a discounting mechanism and all the news instantly is reflected in the fundamentals.

If you see experts talking on the TV or writing stories, then this information is discounted – The arguments may sound convincing, but that is what the media does sell stories.

The experts who put out stories are not traders and their more often than not dead wrong.

If it was easy to trade off news stories, a lot more traders would make money and the fact is they don’t.

By listening to the news and acting upon it you will lose.

Let’s go back to the equation:

Market fundamentals + Investor perception = Price movement

As the market is instantly discounting news we can simply assume all fundamentals and news is instantly reflected in price action.

All you need to do is follow price action and focus on investor perception of the fundamentals.

This makes a technical approach ignoring the news the best way to trade the markets.

As investor psychology is constant, repetitive chart patterns can be spotted and acted upon.

If you try and use the news you will simply lose.

Consider the fact that markets collapse when the fundamentals are most bullish and rally when they are most bearish and you will see that trying to act of the news is a waste of time.

How many times do you see a market ignore the news and go the other way?

It happens all the time.

Will Rogers famously said:

“I only believe what I read in the papers”

He was joking, but many FOREX traders actually do believe what they read and think they can trade off it and lose.

The market is a discounting mechanism and trying to trade off news stories will most likely see you fail.

So if you want to make money trading FOREX keep in mind this important bit of FOREX Education

Understand the past, think in the present and look to the future.

You can do this by simply following technical analysis and see future trend changes people listening to the news will never see.

Here we are going to look at two contrary trading tools that most traders never use, yet if you use them as part of your FOREX Trading method you will spot and see the really big trend changes.

These contrary moves are the ones all traders want and these two little known tools will help you Hit them for big profits.

The tools are % Bullish and the Commitment of Traders Report Net Traders Positions Report.

These tools will add a new dimension to your trading so let’s look at them.

We all know that the really big trend changes come when greed and fear have pushed prices to far either up or down.

When prices are pushed to far from fair value they eventually turn around and go the other way.

Here are two tools which will help you spot when a market has been pushed to far and a turn is likely.

We have written more in depth on both of these indicators, so look them up. Here we will introduce you to them and show you how to incorporate them in your trading plan.

1. % Bullish

This is a poll of investors and people involved in FOREX and it assesses the bullishness of the market.

If the number is below 20% prices are probably oversold and if they are above 80%, they are probably overbought.

The fact is if the fundamentals are to bullish a trend change is due and the same applies if they are too bearish.

Keeping an eye on the % bullish number will alert you to big contrary trades forming.

2. Commitment of Traders Report

How would you like to track the really successful investors and see what they do, well that’s what this report does and its free!

Every two weeks the CFTC publishes a breakdown of the holdings of the futures markets (including the major currencies) and these positions are very useful for FOREX traders to.

Hedgers get preferential margin treatment if they disclose their positions – these guys are close the fundamentals and are the smart money.

The other two groups in the report are small and large speculators.

Hedgers are looking simply to protect their position and will move their positions slowly.

They are not influenced by the emotions of greed or fear and when a price moves to far from the fundamentals they will aggressively sell a market top and buy a market bottom.

Speculators both large and small are influenced by greed and fear.

When you see extremes:

Commercials heavily long or short and speculators opposing them – prices will break in favor of the commercials in most cases.

These two indicators will help you spot every major market top or bottom.

Once you spot a position it is then a question of timing your move by using technical analysis.

These 2 contrary trading tools will help you spot the opportunity then it’s to your charts and use your normal tools to get in on the action!