Explanation of news trading

Explanation of news trading

News is at the heart of any trading or investment strategy, so learning how to trade with the news is a great skill every trader should have behind them. Find out everything you need to know about news trading before taking a position.

What is news trading?

News trading is a technique that uses the latest news on stocks, currencies and other markets as the basis of a strategy. This can include economic reports, company announcements, such as earnings, management changes and stock splits, and unforeseen geopolitical events.

Increasingly, social media is also influencing trading strategies. We’ve seen the rise of Reddit forums that allow independent traders to take on Wall Street, and Elon Musk single-handedly wiped millions of dollars off his company’s value with a tweet.

Find out what “buy the voice, sell the news

How to read trading news

Reading the news may seem like a simple task. For the most part, even a non-trader will do it every day. But reading the news for trading requires you to be able to make judgments about what will impact the markets and what will not.

In general, news stories can be divided into two categories: recurring stories and unexpected stories.

  • The recurring news are the scheduled press releases. We see them in economic calendars at least a week in advance, and financial markets have time to analyze, predict and evaluate information even before it’s made public. Unless the outcome is different from expectations, this news does not always cause price changes. Examples include central bank interest rate decisions, economic data releases, and quarterly results.
  • The unexpected news are the announcements that no one sees coming. These include global pandemics, geopolitical conflicts, weather events, terrorist attacks and financial crises. Due to the sudden nature of this news, when the news gets out it is likely to cause a ripple in the financial markets as traders and investors try to prepare their positions for the aftermath. These may also be known as Black Swan Events

How often you read the news will depend on your trading strategy. Most long-term investors will avoid chasing the news and will only make event-based decisions very occasionally. But traders can find opportunities in the short-term volatility that follows an event. For example, day traders can check news feeds multiple times a day to identify opportunities.

While positive news creates buying opportunities, negative news typically generates selling pressure, which can create the opportunity to short sell.

exchange of news

News announcements tend to make themselves heard in financial markets, including stocks and indices. This means that before trading you will need to have a thorough understanding of news announcements and how they have affected the markets.

That said, it’s important to understand that history doesn’t always repeat itself. You will need to have proper risk management in place to mitigate the risk of making mistakes.

You can also practice your news trading strategy in a practice account before moving on to live accounts.

How to use news to trade stocks

It is important to think about how actions and sectors will be affected by a journalistic event. For example, if a recession occurs, industrial stocks tend to see their earnings hit when projects start to decline, while defensive stocks are able to withstand a downturn.

The most common way to use news to trade stocks is to set specific alerts for your current holdings or companies you are interested in. The events you are looking for are:

  • Publication of results – including future earnings analysis, as big moves tend to happen before the event itself, in what is known as “buy the rumors, sell the news”
  • Corporate actions – such as dividends, stock splits, mergers and acquisitions.
  • Government economic reports – such as employment statistics, durable goods data and GDP.

Check out ours economic calendar for scheduled announcements.

How to use news to trade currencies in forex

News trading is a common forex strategy given the round-the-clock nature of the market. Unlike the stock markets, the forex market is always open, as it is often the reference market for out-of-hours quotes.

The forex market is still known for its volatility, but high volumes of traders taking positions after press releases can create even more erratic prices.

For the most part, currencies react to the release of economic data, which are considered key indicators of the health of an economy. These include:

  • GDP
  • Non-agricultural payslips
  • Home sales
  • Consumer price index

Again, the bigger moves follow an upset, where the actual numbers don’t match expectations.

You can start trading news with Forex.com:

  • Open a real account where is it Connect to an existing account
  • Search for the market you want to trade in
  • Position entry and addition of risk management tools
  • Trade monitoring and closing

Alternatively, you can also practice your news trading strategy first with a demo account without risk.

By Rebecca Cattlin, CMT, FOREX.com »Official site

Disclaimer: The information and opinions contained in this report are provided for general information purposes only and do not constitute an offer or solicitation to buy or sell any forex or CFD exchange contracts. Although the information contained herein has been obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, and assumes no responsibility for any direct, indirect or consequential damages that may arise from the fact that someone relies on such information.

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