How to Trade the News
Types of Financial News
There are generally two broad categories of news: scheduled and sporadic. Scheduled events include general elections, company earnings reports, and economic data releases, such as interest rates and employment data. Scheduled events can be tracked using tools such as , news feeds,
and even social media. Scheduled events form the bulk of news trading strategies, and tracking their releases helps traders to mitigate event risk.
On the other hand, sporadic news involves events that occur pretty much unexpectedly, and they can catch investors and traders unaware. Their impact as well as the time of occurrence are not known. Recent such events include the 2008 global financial crisis and the 2020 coronavirus pandemic. Sporadic news is a source of huge risk in the market because traders and investors find it difficult to determine when the panic-inspired short-term impact will end
and when the expected long term correctional move will start.
Executing a News-based Trade
Here are the steps to follow to increase your chances to to execute a high probability news-based trade effectively
Have a Trading Account â This may seem straightforward but having the right trading account is vital for successful news trading. The nature of news trading is to quickly take advantage of events, and this is only possible if you . The broker should be regulated and able to guarantee quick execution of orders as well as competitive spreads, especially around the newsevent. A good broker will also support multiplatform functionality to allow you to trade on the go. This is where AvaTrade checks all the right boxes.
Track the Event to be Traded On â News trading is only relevant when you know the type of news relevant to the underlying asset you wish to trade. You can track news using the Economic Calendar, which is particularly ideal because it also highlights the level of impact an expected news event is likely to have on the underlying asset.
Identify the Best Opportunity to Trade â The general idea when trading the news is to ensure you are on the winning side. That is, your trade is in tandem with the move that follows the news release. You can place trades before, during, or after the release. Placing trades before an event would imply that you have a directional bias, and if you are right, you will reap the rewards. You can, however, experience massive losses if you are wrong. Placing trades during the release of a news event can be very prudent because you will be placing trades according to actual data. However, spreads tend to widen during the release of news events, and there is no guarantee that prices will go in the intended direction that an actual news release suggests. Placing trades after a news release is also wise because you will have seen how the market reacts to the event. However, the profit potential may be diminished.
Incorporate Technical Analysis â News trading can be very effective when technical analysis is incorporated. No matter the trading opportunity that you wish to exploit with news trading, it is important to watch out for the important technical characteristics of the underlying asset. before the news release, as well as important that will serve as price targets for both take profits and stop losses. Technical tools such as , and even oscillators can help identify value price areas to target before, during and after a news event has occurred.
