News trading is an essential part of any trading strategy. Even if you don’t use it actively in your trading routine, ignoring the major news might cost you a deal or two. But how exactly do you read the news and use it in your routine?
Why should I monitor the news?
Volatility is what makes the market go round. Major news tends to attract a lot of attention to specific assets, making their prices change - sometimes drastically. If you ignore the news, then you might not notice a sudden spike in price interrupting your carefully crafted trading strategy.
Even if you prefer a safe bay, the storm will affect you just as much as anyone else.
Which news exactly should I monitor?
That’s a great question. Not all kind of news has a significant effect on the market. Usually, experts refer to economic data releases such as GDP and inflation. Most websites provide unique economic calendars where you can find them sorted by importance, date, and country.
However, sometimes some significant events can happen unpredictably. Something that could influence the economy of a whole country, such as cataclysms, wars, epidemic outbreaks, will result in price changes.
A professional trader always keeps an eye on:
Central Bank Calendar
Real-time news feed
How does the news influence the market?
Right before some major releases, traders tend to lay low. No one knows the exact outcome, and for most day traders opening a deal without a plan will most likely result in loss. Wider spreads is another occurrence that precedes major news - this way, liquidity providers and retail brokers offset their risks.
The lack of liquidity can also become a problem and cause slippage - sudden price changes that won’t get covered by Stop Loss.
Wider spreads can also result in a margin call, so take care of it before major releases.
How do I protect myself from the risks?
News trading is an exciting opportunity to profit, but it comes with a price of significant risks.
Using your Stop Loss is a must in that case. Make sure you set it at a reasonable level - you can adjust it later after the most significant risks are over.
Some traders also prefer to lessen the sizes of their deals.
Controlling your emotions is another additional way of risk management - don’t overlook it!
So should I trade before, during, or after the news release?
All of the above work - but in a slightly different way.
Trading before the news release: this type of trading is suitable for those who prefer to enter the market under less volatile conditions. This way, the level of risk is lower.
Trading during a release: this type of trading is suitable for the most experienced traders only. It requires entering the market just when the news is published - of course, while knowing which direction you should take.
Trading after the news release: after the market has calmed down and processed the news a bit, it’s much safer to place your deals. Don’t forget to use the technical analysis to define the trend.
Following the news is inevitable when you deal with the world of finance, so it’s always important to stay alert and monitor the situation. Always remember to come prepared, mind wider spreads, and get ready for increased volatility.