There is only bullish news in bull markets; only bearish news in bear markets; and a mix in neutral markets! I know, I know, sounds too simple.
But take a look at a chart of a major bull market. By definition, most of the news in that period had to be bullish or interpreted by the market as bullish. So you should expect most news to be bullish or at least to be interpreted as bullish.
By holding bullish positions into numbers that should be bullish, you should be gaining incremental profits. Not big money but certainly a greater profit than you would by bailing out of positions before big economic numbers.
The downside is that you will have some bigger swings in the market. In addition, there will be few instances where the news item will create enough volatility that you will be stopped out of your position only to see the market rally after you have been stopped out. Fortunately, this is rare, but it will happen.
In the meantime, you will be gaining a series of small to moderate profits from holding positions into economic news. The same principle makes it easy to outperform the gurus in predicting the economic numbers. Take the midpoint of predictions and then you should predict something reasonable on the bullish side of predictions. Let’s say that the market is predicting a 0.3 percent gain in widget production with 0.2 percent as bullish and 0.4 percent as bearish. It is a bull market in the currency pair you are trading. You should therefore simply make a prediction of, say, 0.1 percent. You will probably be closer to the actual number than the consensus figure of 0.3 percent and therefore make money and be better than economists!
This phenomenon occurs because analysts are always slightly behind reality. They spend their time trying to catch up to what is really going on. Let me prove this.
Let’s make just one assumption and that is that analysts and the market have equal ideas of the upcoming number to be released. If the market had perfect prescience then the price of a currency pair would never move because the market would know exactly what is going to happen and would find the correct price for the pair to discount that information. However, note that markets move in waves up and down and sideways. This is the market’s attempt to find out the underlying value of the pair.
A trend in a market is caused by the underlying value of a currency pair moving, in this example, higher but the market not seeing the end result. The market therefore churns higher, trying to discount the change in underlying value. It is always behind the value or else there would be a one-time shift to a new higher level.
Therefore, it is easy to predict news items because you are simply capitalizing on the tendency of the analysts to lag the real value of a market. A piece of news comes out, the news is bullish, and the price moves higher.
You will now be able to outperform the gurus who make millions predicting the economic numbers. I suggest that you try this out in the real world and you will see that you will outperform the consensus of predictors. Amazing, but true!
Source:How To Predict The News?
