Before you rush to answer with yes, take a moment and make sure you do. I think one of the most evident cases that plenty of market participants do not understand economic data is the monthly NFP report.
You can tell how many cheer a headline figure of let’s say 180K while unemployment dropped by 0.1% and claim the report was good, when in reality we saw a mediocre report which points to udnerlying issues in the labor market (this was just an example and not an actual report so please don’t go looking for it). The headline fake on the NFP, as many pros call it, happen quite frequently as so many want a feel-good number.
In order to really understand what the report is saying you need to fully understand the report and dig much deeper which is something the majority don’t feel like doing or don’t understand how to do and what to look for. They rather rely on a report published on their favorite news channel. In my opinion, you need to understand economic reports if you want to become a successful trader.
However I don’t believe it matters so much when trading shorter time frames, such as holding a trade for less than 24 hours. Economic data can, and typically does drive the overall directional bias of the market in question, however when zooming in on this “directional bias” there is always opportunities to take trades both with and counter to the longer term trend. For these short term traders, and the ones who are good at it, these news headlines can sometimes already be seen to be priced into the market…what I’m trying to say is that a reaction in price which is caused by a news head line usually occurs at a relative level on the charts which agree with technical analysis, these reactions do not just occur randomly - unless it is of course an unexpected news headline (which happens far less frequently, thankfully).
As long as shot term “Day Traders” have an awareness of upcoming market moving news, such as your NFP example, and appreciate the potential for increased volatility then I would still gear most of my time towards that of technical analysis rather than worrying about economic data. However, with that being said there is absolutely nothing wrong with knowing too much!
Lots of people in these forums use a mixture of fundamental and technical analysis but I’m not one of them. I don’t pay too much attention to fundamentals except out of passing interest because I find that pure technical analysis is sufficient to predict market direction often enough to make a profit. When NFP comes out I trade the market once it’s reacted, not the reaction itself.
I look at the news but frequently find myself confounded by seeing “good news” having the market effect I would have associated with “bad news”. So I can safely say that even if I [I]think [/I]I understand the bones of economic data, I obviously don’t!
Sometimes it’s not even about the underlying issues. For many day traders, they just want to take advantage of added volatility brought by divergence from expectations or revisions from previous releases. For longer-term traders, news releases could be opportunities to get in a trend at a cheaper price.
