What is News Trading?
News trading is a trading strategy that takes advantage of news events. A ‘news trader’ looks for a fast moving market based on recent news announcements. For a news trader “volatility is king“. Volatility is usually brought about by a surprise news announcement. However, this is not always the case, a planned announcement can also lead to large market movements, like the United Kingdom voting for Brexit.
To find a planned news announcement, you can head over to our economic calendar.
Most news traders read deeply around news events and make an educated decision on how they believe the market will react. They will then set up predetermined order types that cater for their desired risk management strategy.
However, a news trader wont always have a bias upon how the rest of the market may react to a particular news event, in which case many news traders use the straddle trade strategy.
The Straddle Trade Strategy
This trading strategy is quite complex and should be used with caution. If a news trader expects a move, but does not know in which direction it will go, then they would typically use the straddle trade strategy.
To successfully trade this strategy a trader would review a chart around the 20 minutes leading up to the planned news announcement, in which they would see a period of consolidation.
A trader would then set stop orders above AND below the support and resistance lines of the period of consolidation. Therefore, in whatever direction the market moves they will be able to ‘straddle‘ this trend. This technique is a very similar technique to that of what we learned when trading bilateral patterns.
If you have entered the market using the straddle trade strategy, it is important to remember to delete the other stop entry order that you had created in case the market was to move in the other direction.
What to Consider when News Trading?
– Use tight stop losses in case the market moves against your bias, as drastic moves in the opposite direction could potentially blow your account.
– Focus on news events that will create a large volatility, “volatility is king”.
– Don’t be married to your bias, be flexible to which way you think the market could react.
What are the key news releases?
A big decision can be deciding which news releases to trade. If a news trader is trading major currency pairs that are liquid, they should focus on the news events related to these economies.
Therefore, the United States, United Kingdom, Japan and European news events usually are the best ones to watch out for.
An important news release could be related to changes involving the following;
– Interest rates decision
– Employment numbers (Non-farm payrolls etc)
– Inflation numbers (consumer price or producer price index)
– Retail sales numbers
– Industrial production
– Business sentiment surveys
– Consumer confidence surveys
– Trade balance
– Manufacturing sector surveys
- News trading is a trading strategy that takes advantage of news events.
- A ‘news trader’ looks for a fast moving market based on recent news announcements, “volatility is king”.
- Most news traders read deeply around news events and make an educated decision on how they believe the market will react.