Trading the News: 3x News Trading Strategies + 7 Tips

Dear trader, are you considering trading the news. Like trading crypto or stocks based on news reports? Bold choice! In this case, you need advanced knowledge of day trading. In this article, you'll find an explanation of 3x news trading strategies you can apply. Moreover, we share 7 tips to get started with news trading. This is applicable for stocks as well as crypto and forex.

Note: Are you a novice investor just getting started? In that case, we wonder why you want to trade on the news. As a novice investor, it is much smarter to start investing in ETFs. Lay a good foundation first, before you commit risky activities that you will regret. Avoid expensive mistakes!

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What is Trading the News and What is its Purpose?

Opening long or short positions based on economic data releases and global events is what news trading entails. News traders attempt to forecast how their chosen market will respond by following both scheduled and unscheduled news. Think of crypto investing where there is positive news because of the years-long lawsuit against Ripple. Or for those who want to begin with forex, keep an eye on the news about the development of the USD/EUR currency pair.

News traders rely mainly on fundamental factors to determine the direction of the market, while technical analysis is used to confirm predicted trends. In both cases, however, it is pure speculation. Speculation is not a sustainable basis for structural success. The goal of news trading is to make profits on the trades. Usually, the news immediately shifts the trend in a direction that, if anticipated correctly, can bring you big profits. News trading is often used by day traders. They are looking for highly volatile trends to speculate on. 

Trading the news is extremely risky. Risks can be reduced if you know the market and the entry/exit positions well. However, most beginners do not know this. News trading is therefore not a strategy for novice investors. 

Trading the News: 3 Strategies Explained

Let us examine 3 strategies for trading the news. In essence, it is quite simple, but of course you do need to apply the basic tactics of day trading such as stop loss and limit orders. 

Classifying News

Scheduled News comprises the scheduled delivery of market-moving news, such as Federal Reserve interest rate announcements, quarterly earnings reports from companies, and economic data releases.

Unscheduled News is defined as events that occur out of nowhere, such as a terrorist attack, a sudden geopolitical flare-up, or a country's danger of financial default. Generally, random news is more likely to be bad than good.

3 Strategies to Trade the News

Trading the news can be done in a variety of ways. To begin, some forex traders attempt to foresee the outcome of economic releases and place a trade based on this prior to the announcement.

Prior economic releases provide hints to forecast economic data. For example, the employment component of PMI reports may be used to anticipate US job data. If the employment component of the three reports grew from the previous month, it implies that the number of new jobs generated increased as well.

A second strategy for trading forex on the news is to wait until the number is out and then trade based on how the market generally reacts to such a circumstance. For example, if US retail sales outperform estimates by a wide amount, you may sell EUR/USD based on expected US currency appreciation.

A third forex news trading strategy ignores fundamental data in favor of focusing simply on prior prices. In other words, the forex trader does not start with a directional bias. A common strategy of this type is to trade breakouts from the prior range as entry levels. This may be done on a short-term intraday basis as well as a daily basis.

In the above example, we use currency trading. However, the news trading strategies are also applicable to stocks and cryptocurrencies. As far as we are concerned, there are really better day trading strategies applicable. Or even better: choose long-term investing 😉 !

Risks in Trading the News 

When compared to other types of investments, forex is well-known for its tremendous volatility. This level of volatility is only increased by major news events, owing to the fact that spreads rise at such times. This also entails that you will need to keep your nerves steady while trading during news events or macroeconomic data releases (i.e. Interest rate decision, NFP, CPI, Monetary policy meeting minutes) since a wrong speculation idea during a period of extreme volatility might have severe consequences for your forex account.

Slippage is not a minor concern, and it is more noticeable than ever when entering the forex market to trade during significant news events. Because of the cost fluctuations, your order price may be significantly different from what it really costs to execute the trade. As an example, suppose you opted to trade USD/JPY at a time when a very volatile news report hits the market; the likelihood that it may move 100 pips in only seconds is not unusual. You might easily wind up incurring massive losses as a result of this, as control is removed from your hands.

As you are surely aware, large market moves have the ability to drag the market in both ways. When a huge item hits the forex newswires, it may send the market flying in one direction just to whip it back the other way in an instant. This might imply that large market moves can make discerning the genuine market direction difficult at times. Nonfarm Payroll numbers, for example, have a history of wreaking havoc in the world of forex. This year was unusually stormy for the EUR/USD symbol, as it originally threatened to weaken its price, only to subsequently go on to fuel its resilience, according to numerous news reports.

7 Tips for News Traders

If you want to begin with news trading, then we have some tips for you. A useful tip is to begin with news trading at a free demo account. Use fake money, before you start risking your own. Be aware of the high risks of news trading. Especially if you’re a beginner. 

Almost all of the best day trading brokers offer a free demo account. 

Tip 1. Know the Dates and Times

The dates and times of prominent market events, such as economic data releases, FOMC announcements, and earnings reports from key companies, are easily accessible online. Make a note of this event calendar ahead of time.

Tip 2. Have Clear Tactics in Place Beforehand

You should plan your trading strategy ahead of time so that you are not forced to make rash decisions in the hype. Before the activity begins, choose your precise trading entry and exit positions.

Tip 3. Avoid Panic

Make rational investment decisions keeping in mind the risk tolerance and investment objectives. This may need acting as a contrarian on occasion, but as experienced long-term investors can confirm, this is the ideal approach for successful equities investing.

Tip 4. Cap your Risk Levels

Trading news is highly riskier. It is a must to cap your risk by placing stop losses. It is recommended to learn about market entry and exit positions before deep diving into such a kind of trading. 

Tip 5. See the Big Picture

Often, investor reactions to the news are unexpected. You'd assume that an announcement of a dividend decrease would result in a stock sell-off. Investors sometimes applaud the move as an indication that a firm is investing more in its operations.

Tip 6. Don't Be Swayed by Market Sentiment

Being too swayed by market sentiment may encourage you to purchase high when ecstasy reigns supreme and sell low when doom reigns supreme. Consider the plight of the many inexperienced investors who were so frightened by the never-ending stream of negative news in 2008 that they sold their equities investments near the bottom, incurring massive losses. They lost out on the S& P 500's stunning 166% gain from March 2009 to October 2013.

Tip 7. Know when to "fade" the News

It is sometimes just as vital to ignore or "fade" the news as it is to trade it. The best tip we can give you is not to start news trading. News trading strategies are pure speculation. Unnecessary. Too much risk. The chance of losing a lot of money is high. Why would you?