World News Effects on Trading

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As any investor knows, the world news plays a big role in the financial markets. Watching just the money and business pages can cause you to misstep in numerous ways. The way political news, world news, and financial news interact for a combined effect on trading conditions is often overlooked but it should not be.

The finance and investing analysis often is filled with numbers from the various government agencies around the world that detail the latest updates to the consumer price index, consumer confidence, inflation rates, and interest rates to name but a few and these numbers are used to make predictions on how a market will react. While this is a good starting point, analysis that does not include political and world news is missing out on a huge component of forecasting. It is failing to take into consideration two major factors-

  • It is the world and political news that often directly influences the pure monetary figures being released in the government reports. Waiting for the official notice of how the monetary markets reacted is too little too late for effective investing strategies. By taking the news into consideration you can take positions in anticipation of the market indexes as opposed to a reactionary position that is assumed by the masses after the release.
  • Trading decisions are still ultimately made by humans. Even the staunchest technological indicators investors react to in certain ways to major news. When news broke of a Tsunami hitting Japan a few years ago it was not difficult to anticipate it would have a huge effect on the currency markets and stock markets. This obvious example of news spurring trading decisions does not make it any more important in day to day trading than any strongly negative news – for example the chemical weapons reports from Syria in recent days making markets (actually the human traders) jittery about the uncertainty. Watching global news and political news will allow you to adjust to avoid or take advantage of knee jerk reactions by traders.

While there are many places available to get expert analysis of the stock, commodities, and foreign currency markets, placing excessive faith in any of them that list nothing but ticker tape numbers in forming their opinions would be a mistake. It should be clear that these sources are simply providing a piece of the puzzle. As another example, the announcement this week that unemployment numbers had remained the same in Europe marking true stability in labor and unemployment for the first time in several years had far less effect on the European Exchanges than the announcement from the UK news that its parliament had voted against direct military action in Syria. While the unemployment numbers and actual drop in unemployment could have been expected to send markets higher, the continued unrest about what the US response will be has left markets flat and in a wait and see attitude across the long weekend in the US.

When you are researching for the purpose of investing, using all available sources that could be expected to have an effect on the day’s trading is prudent, as well as checking several sources. While time constraints make it near impossible for the individual investor to watch multiple news shows and read multiple newspapers each day, they certainly can ensure one or more of the sources includes the influence of the global political news on technical analysis.