102-10 Trading News Events: How to Trade the News

There are a few key things to remember when trading news events. Firstly, always be aware of what is happening in the news. Secondly, make sure you plan how you will trade the news event. Lastly, always use stops to protect your investment.

Course 102 - Stock Market Investing
Trading News Events: How to Trade the News

When it comes to trading news events, the most important thing is to be aware of what is happening in the news. You can follow economic calendars and keep up-to-date with the latest economic news. Doing this lets you know when key economic data is released and how this could affect the markets.

13 Best Financial Stock Market News Sources of 2024

It is also important to plan how you will trade the news event. This means knowing what you want to achieve from the trade and how you will execute it. For example, will you be buying or selling the asset? What is your stop loss and take profit? Knowing this in advance will help you make better decisions when trading news events.

What is news trading, and how does it work?

A news trade is a type of trade that is based on the release of new economic or financial data. This type of trade typically involves buying or selling a security or other financial instrument in anticipation of the market’s reaction to the news. Traders who participate in news trading often use sophisticated analytical techniques to predict how the market will react to the news.

How can news affect stock markets?

News can cause stock prices to rise or fall if it is seen as good or bad news for the company. For example, if a company announces strong earnings or releases a new product that is well-received by the market, its stock price will likely rise. Conversely, negative news, such as a product recall or allegations of fraud, can lead to a stock price decline.

How To Trade the News: 15 Profitable Insights

Trading news events example

We have all been there. Have you bought a stock you thought was a winner, like the perfect first date? It looked good, felt good, sounded good, smelled right, and most of all acted right. Even when it came to paying the bill, they paid.

The bill, of course, was the earnings report. The earnings were great, the chart looked good, and the fundamentals looked great; it had an order book of new contracts in a booming economy and an industry leader delivering a good service. Yet when the excellent earnings were reported, beating estimates no less, the stock plummeted by 50% in one day.

Did you know that unless you pay for the premium services offered by Bloomberg and Reuters, you receive the news with a 30-minute delay? The playing field is not quite level. That is why you pay the premium price.

On the release of the earnings, the company decided to issue more new stock to the market. The stock price had quadrupled in the previous four months to over $2, and the future was rosy, yet the delay in news hurt.

When this charlatan of a company decided to issue extra stock to raise capital for one of its new megaprojects, it issued them at 50% of the value of the stock available on the market. This immediately involved carnage to the stock price. The price, although eventually recovering, has again slumped to under $1.

Some play the news with some success. The problem with playing the news is it is not hard and cold facts; it is feelings, interpretation, and an abstract appreciation of how the public interprets news events.

How often does it happen that the stock falls when a good earnings report is announced? Too often! Why? There is a saying on Wall Street that you “buy the rumor, sell the news.” That’s great if you mingle in the rumor circles that might pay insiders, employees, and good buddies with the CEO. However, mere mortals might not have these advantages. There are also too many rumors that have backfired, tips from a friend in the industry, the nod from the supplier to a new startup company with a bright future; apart from being illegal, insider trading of this nature, especially when the second-hand is completely unreliable.

But to some extent, we all play the news. One way or another, it gets us. Turn on any news channel, and the reporters constantly overstate the meaning of things. We should not believe everything we read. One of my favorite headlines was from USA Today.

“Gas price decline may spur inflation.”

Honestly, can you believe that?

Of course, economists can rationalize anything, but you should not believe everything you read. Taking the news with a pinch of salt can be useful and make our minds up about its real meaning. But too much news can drag you in with the sheep on the road to the slaughterhouse.

Trading the news can be very difficult; this is why there is such a strong emphasis on fundamentals and technical analysis.

News is completely open to interpretation, so I don’t like news corporations that force their opinions on viewers or readership. Viewing news with a contrarian attitude or making your own decisions on what that news means is critical. When everyone yelled from the rooftops that the American auto industry was dead, you should have been watching Ford for a rebound.

Barry D. Moore – Liberated Stock Trader Book 2011 ISBN: 978-1460956021

What is the difference between news trading and regular day trading?

The main difference between news trading and regular day trading is that news trading involves making trades based on events that have just occurred, while regular day trading is more about making trades based on the overall market trend. News trading can be riskier and more profitable since there is often more volatility in the markets immediately following major news events.

Section Summary

This training course section gave you an overview of the stock markets, their size, and their growth. We also covered the boom and bust and cycles. We even looked at how to build a successful trading plan and trade the news.

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