News Trader
Candlefocus EditorNews trading enables traders to take advantage of short-term price volatility resulting from economic announcements. Highly publicized events such as interest rate decisions, GDP releases, and employment reports, are scheduled in advance and have an expectation of market movement. By anticipating the direction of price movements, traders can take up positions that profit from short-term volatility. Along with planned events, news traders also focus on unplanned events—such as disasters and major policy announcements—that are capable of triggering large, unexpected movements in the markets.
News traders need to be able to interpret the market’s reaction to news, anticipate how the markets will react to the news before it’s released, and quickly enter and exit the market with a suitable strategy. To do this, news traders need to conduct thorough research on all the relevant news events, develop a strategy that meets their risk tolerance and capital requirements, and understand their own risk tolerance level.
When using the news trading strategy, traders take up positions for a very short period of time as the impact of news usually fades quickly after being made public. Many news traders scalp or swing trade within minutes or hours of the news coming out, focusing on quick trades and larger positions sizes to maximize their returns. While some traders may look to cover their positions prior to the end of the trading day, others may hold their trades longer-term as part of a trend-following strategy.
Regardless of the approach employed, news trading by itself is a high-risk endeavour and should never be used as a sole strategy. Even if all the research and risk management measures are taken, news traders need to prepare themselves for unexpected market moves or developments that come out of the blue. As they typically require greater capital outlay and sustained emotional engagement, news traders should assess their trading timeline and their financial capacity before investing in this type of trading strategy.