Why Reading Analyses is Essential for Trading

Over time, we’ve received comments questioning the necessity and usefulness of reading analyses for trading. These remarks have persisted for some time, so we’ve compiled a list of common criticisms along with responses to address each one.

1. Why Should Traders Read Any Analysis?

Forex trading is complex, and the world is full of variables that can influence market movements. Understanding these factors is crucial for making informed decisions. For example, if a trader went long on the EUR/USD at the beginning of January, based on a long-term trend, without considering the upcoming Non-Farm Payrolls (NFP) report, they might have been caught off guard by a sudden 41-pip move. Such surprises could be mitigated by staying informed through analyses, which help traders make more educated decisions, even if they don’t guarantee success.

2. Why Not Just Follow the News?

While following the news is important, it only provides an overview of upcoming events without delving into potential market reactions. An analysis offers deeper insights into how events might unfold and their possible impact on the market. For instance, reading an analysis could have helped the trader mentioned earlier better understand market dynamics and protect their investments more effectively.

Analyses save traders time by distilling complex information into concise, actionable insights, allowing them to focus more on trading rather than sifting through news and data.

3. Should Traders Only Focus on Daily Events?

Limiting yourself to daily events might not capture the broader market trends. Markets often price in long-term developments well before they fully materialize. For instance, if a trader had read about the potential impact of declining US corporate profits due to trade tensions back in October, they might have anticipated or responded more effectively to the subsequent stock market decline. Analyses provide context for making more informed decisions, rather than just reacting to immediate news.

4. If Analysts Don’t Provide Specific Buy/Sell Advice, Why Bother Reading?

The purpose of analysis is not to dictate specific trades but to offer insights and ideas. Traders should use these insights to make their own decisions based on their strategies and risk tolerance. An analysis that suggests the US economy might enter a recession, for example, could lead to various trading strategies—shorting the Dollar, going long on the Yen, or other options. The key is for traders to use the information to develop their strategies rather than rely on predefined recommendations.

5. Why Don’t Analysts Trade if They’re So Knowledgeable?

Professional analysts are often restricted from trading to avoid conflicts of interest. This separation ensures that their analyses are objective and not influenced by personal gain. Analysts focus on identifying opportunities, while portfolio managers execute trades based on those insights. This division of labor allows for more focused and profitable decision-making.

6. Why Should Scalpers Care About Analysis?

Even scalpers, who trade on very short timeframes, can benefit from understanding broader market dynamics. For instance, a sudden market move following an NFP report can affect even the shortest trades. By understanding the potential impact of news and data releases, scalpers can manage their risk more effectively and make more informed decisions.

7. What If I Don’t Believe in Technical Analysis?

While technical analysis may not resonate with everyone, it has proven useful for many traders. Independent studies suggest that strategies based on technical analysis can help outperform the market. While it requires time, patience, and practice, technical analysis can provide valuable insights into market timing and trade management, even for those who primarily focus on fundamental factors.

8. Why Bother with Fundamental Analysis?

Fundamental analysis helps traders understand the underlying economic conditions driving market movements. It allows traders to answer the “why” behind their trades, rather than just following a set of rules. Fundamental analysis is particularly important for understanding interest rates, which can affect swap rates and overall market sentiment. Even for short-term traders, fundamental analysis provides context for how economic data might influence market behavior.

9. Why Follow Your Analysis Over Others?

We’re not suggesting that our analysis is the only source to follow, but rather that traders should seek out reliable, up-to-date analysis that aligns with their interests and trading style. Just as people diversify their news sources, it’s beneficial to consult multiple analyses to gain different perspectives. We encourage you to give our analysis a try and see how it complements your trading strategy.