Why Reading Analyses is Useful for Trading- Part 2

click for Part 1

6. If one is a scalper, why should he/she read any analysis?

Simply put, because news and overall economic developments reach everyone, irrespective of their trading timeframe. Take the NFP example in point #1: even if the trader was in the position for just 1 minute, the candle after the announcement could have caused trouble if one didn’t pay attention to the news or if there was no consideration regarding the impact these could have on one’s trade. Thus, for someone trading the news, actually understanding what could happen is likely to save a lot of trouble and be an important risk management technique.

Granted, the minute trader does not really care about long-term economic developments. However, if a scalper was following the US analysis mentioned in point #3, then he may have gotten some idea as to where to place trades when the earnings reports came out. As such, even in this case, the educated trader stands to potentially benefit by understanding the overall economic environment and how data releases are expected to come out.

7. I don’t really believe in technical analysis.

Many people don’t. But that doesn’t make them right or wrong. For example, there are plenty of independent, academic studies which suggest that strategies based on technical analysis can help in outperforming the market. Naturally, this does not mean that everyone using technical analysis will become instantly rich. It takes time, patience, and constant effort to make something work for you; one should also be prepared to fail many times. Some may even find that technical analysis does not really fit their profile and they cannot make it work for them; it would still be useful in providing ideas for trading, given that it can guide traders regarding when to enter or exit a trade, and thus is of much practical use.

8. I agree with the above. Then why should I use fundamental analysis?

Because, in the end, no currency or market can ever escape its economic fundamentals. Even if the markets ignore a worsening in the economic environment for a while (which they usually don’t), they will eventually come to their senses. Fundamental analysis means that one has to understand a country’s economic situation and how that will affect its currency or stock market. By doing this, you reach the level of not just following a trading rule which suggests when to enter and when to exit a trade, but answering the bigger question of why you are doing it. Plus, fundamental analysis, and especially interest rate analysis, is also important in order to determine the swap rate one can possibly pay or earn from a trade. Even for scalpers, fundamental analysis can provide a lot of information given that it is directly related to the data releases we talked about in point.

9. Oh ok, the above make sense. But traders get analysis from XYZ, why should someone follow your posts?

We’re not saying that following XYZ is bad. What we’re suggesting is that a trader should get analysis from sources that have a good track record, are up to date, and deal with the things that interest the particular trader. Just like people don’t get news only from one source, it would be good to get analyses from more than one analyst, as people think differently and could offer different (but at times equally correct) points of view. What we are saying is that you could our analysis website a try.

Overall, those were the main comments/questions we have received over time. Naturally, if any of our readers has any more, let us know and we can reply to them in a later post.

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