Every trader has probably heard that he should read the analysis. The truth is, you really should. However, it is no less important to know why you are doing something. Today’s article will try to respond to the question ‘why should a trader read analysis?’
Know what is coming
There are plenty of events that take place every day. Some of them have quite a big impact on what is happening in the markets. When you stay up-to-date with the latest news you are able to act appropriately when the time is right.
Naturally, even when you follow the news you will not be able to predict all the price movements. Nevertheless, this extra piece of information significantly increases your chances of making the right decision on the trading platform.
For example, the traders who do not read analysis could have been very much surprised by the price of the EURUSD currency pair in September 2020. There was the NFPs announcement and the pair, within minutes after that, moved almost 40 pips down.
Now, I know it is amazingly time-consuming to read all these news. Moreover, you have to imagine which news affect the market in what way. This is a long and complicated process.
This is why ready analysis is so wonderful. It makes the trader’s life simpler because he gets a summary of the most powerful events together with a description of their potential effects.
Do not expect specific tips
The analysis objective is to offer an overview of the markets and their movements. It is not designed to produce specific tips on when and what to sell or buy. Such a decision should be made individually by each trader.
If you open a position because somebody else has said to do so, you are putting your money in his hands. You become dependent on this person. You may win, you may lose, either way, you are not developing trading skills and are not making any progress.
The analysis offers insights into the market and it is your task to exploit it. You should take your own decisions and keep gaining trading experience.
Can you trust the analysts?
Professional analysts are paid to make research and spot an investment opportunity. You may ask why they do not trade themselves if they know the best time to open a trading position. First of all, this is against the conflicts of interest policy. They are not allowed to make transactions for themselves so we are sure they act independently. If they are permitted to trade, they could have wanted to use the privilege of early locating the opportunity and use it to their own advantage.
The Analyst job is separated from the Portfolio Manager position. The first one focuses on spotting good opportunities for investments. The second one executes the trades. Their tasks complement each other but are divided. This ensures the best productivity.
Do the scalpers need analysis too?
Reading analysis is helpful no matter the type of trading you choose. Whether you open long-term positions or short-term ones, it is useful to know what is going on in the world that can influence the price movement. Such information will help you to make the decision about the direction of your trade. Even if you are a scalper not knowing the most important news may significantly ruin your trades.
What is the fundamental analysis?
Fundamental analysis is about understanding the economics of a specific country. Knowing what is the general economic situation helps to predict market behaviour. It is also crucial for determining the swap rate you can pay or earn on the transaction.
I hope you understand now why reading analysis is important for your trading performance. It will definitely not guarantee success. Nothing can. But it will guide you on your way to become a successful trader.
Some say they do not trust analysts. It is okay. You have to find your way. Still, it is good to check for yourself whether it works or not. Give it a try and find out with what ideas you will come up after knowing what is going on in the world and how it can impact the markets.
Do not open and close the trades blindly. Understand why you are doing it.
Lastly, you do not have to stick to one analyst only. Get to different sources, compare and find what is best for you.
If you have any further questions about the importance of reading analysis, do not hesitate to use our comments section. You will find it down below the site.