News Trading

What is news trading?

News trading falls under the umbrella of day trading. The idea behind news trading is straightforward: buy or sell assets based on the latest information shared in the news. Economic announcements, geopolitical events, natural disasters, and news releases about individual companies can all influence what happens in the market.

A news trading strategy focuses on what’s happening and then uses the information to enter or exit positions, potentially making a profit. News updates generally fall into two categories: regular updates and unexpected updates.

Regular updates

These are regularly scheduled news releases that provide insight into the economy and potential market movements. For example, in the U.S., the Federal Reserve’s Federal Open Market Committee (FOMC) meets six times a year to determine benchmark rates and issue guidance. After making decisions, the FOMC releases a statement and what is said in that statement can impact financial markets.

Other regular updates include announcements about employment, payrolls, manufacturing, imports and exports, and other items of economic and financial interest from the government. 

News traders also use announcements from companies to make decisions. Most companies issue earnings reports each quarter. Additionally, you can look at annual reports that often include balance sheets. These regular releases can provide insight into the health of a company and give the news trader clues about the direction the stock could be headed.

Unexpected updates

Rather than being scheduled, some news items catch the markets — and active traders — by surprise. Major news events, like an attack on an oil pipeline or when a CEO steps down from a company amid a scandal, can also influence the markets and individual companies.

Additionally, black swan events like the terrorist attacks on the U.S. on September 11, 2001, or the Covid-19 pandemic that started sweeping the world in 2020, can also have an impact on the market. Certain sectors might be impacted more than others, depending on the nature of the event. 

Smaller events, such as the global supply chain disruption caused when the cargo ship Ever Given got stuck in the Suez Canal, causing worldwide logistics issues and impacting the performance of the financial markets.

News trading is about keeping an eye on events so that when something happens, it’s possible to take advantage of the opportunities it presents. These types of events can lead to swings in the market, and a savvy trader can profit with quick thinking and well-placed trades.

The pros and cons of news trading vs normal trading

The idea that you could capture profits by being on top of the news cycle is attractive. Additionally, when you understand news trading, you do not necessarily need to learn complicated technical analysis techniques. For the most part, trading the news requires an understanding of how certain events are likely to impact markets and assets. You might need a basic understanding of how to use a chart to confirm a trend, but you might not need to put in as much work as you would with some other types of trading, such as fundamental analysis. 

But is news trading really the right move for you? Let us take a look at some of the pros and cons of news trading vs normal trading.

The pros

Plan your trading in advance — When you are using scheduled events for news, it is possible to plan ahead and set up some trades. Some successful news traders keep a calendar of scheduled announcements so they can be prepared ahead of time. Even if you do not know exactly what a release or announcement will say, it is possible to plan different strategies depending on the possibilities.

You do not need specialised market knowledge — News traders do not need specialised market knowledge to be successful. Instead, it’s possible to make a profit by having an interest in the news and a general idea of how news can impact markets and assets.

Quick profits — Trading on the news offers access to quick profits. By paying attention to the news, you can take profits based on market movements, even when the markets head down.

The cons

Markets don’t always behave as expected — Sometimes, even when you expect the market to move one way in response to the news, it doesn’t. This is especially true with unexpected news events. You could potentially lose money if the trade doesn’t go your way as events unfold.

Not all news sources are reliable — Trading on the news requires learning to understand which news is reliable and which isn’t. When you make decisions based on faulty information, you have a greater chance of loss. Additionally, not all news stories are equally important or impact the market to the same degree.

Some impacts do not last — It is easy to get caught up in the emotions of news trading and assume that a news story is bigger than it is, or that something will have a longer-lasting impact. However, that is not always the case. Some impacts do not last and if you are swayed by short-term market sentiment, you are more prone to make costly trading mistakes.

Which asset classes are suited to trading the news?

Asset classes that are sensitive to news trading are those most sensitive to the latest news and information. They are likely to be swayed by what is going on in the moment and being on top of the news could potentially allow you to make a profit when an asset changes directions or makes a big move. 

Here are some of the asset classes that are relatively easy to trade and that might be impacted by the news.

Forex

The Forex market is open 24 hours a day, five and a half days a week. Not only that, but the Forex market is international in nature, so it’s possible to trade based on news from all over the world. News about inflation, government asset purchases, economic announcements, and more all influence how currencies move in relation to each other.

Additionally, it is possible to trade Forex in a way that allows traders to take advantage of small changes. Even a small movement based on the latest news can lead to profits for traders.

Individual stocks

When earnings reports are released, individual stocks often move based on the information in the report. Additionally, depending on the news event, stocks in different sectors might be impacted. Near the beginning of the Covid-19 pandemic, travel stocks, especially cruise stocks, dropped. However, as people began to feel safer and travel restrictions were reduced, travel stocks, particularly airline stocks, began to recover.

Individual stocks are also susceptible to the “story” of the stock or interesting people associated with the company. Even if the fundamentals or financials aren’t very good, news stories about companies can cause stock prices to rise. For example, electric carmaker Tesla has struggled to turn a profit in the past, but the story of the stock and the image CEO Elon Musk has created sometimes causes the price to rise when new projects are announced.

Cryptocurrencies 

Crypto represents a new asset class — it’s only been around since 2009. Additionally, because it’s difficult to value cryptocurrencies, they can make big moves based on what newsmakers say.

In early 2021, when Elon Musk announced that Telsa would accept Bitcoin as payment for cars and that he owned a large number of bitcoins, the price jumped. Likewise, Dogecoin got a boost from comments from Musk, as well as when Mark Cuban announced that the Dallas Mavericks would accept payment in Dogecoin. On the flip side, Dogecoin dropped months later when Musk made fun of it on Saturday Night Live.

With cryptocurrencies, news surrounding the adoption of a coin, the release of a new blockchain, or the backing of a notable figure, can all influence the price.

Examples of news trades

There are various examples of ways the news can be used in a trading strategy to capture profits.

U.S. jobs report April 2021

Every month, the U.S. Labor Department issues a jobs report for the previous month that includes the number of nonfarm jobs added to payrolls and the current unemployment rate. Even though the economy was expected to add jobs in March, the report showed a much larger increase in payrolls than expected. News traders who made a move Friday evening after the report would have benefited when the stock market surged and the Dow Jones hit a new high.

GBP/AUD January 2022

Forex traders benefited from a rise in the British pound against the Australian dollar when the news of jobs added to the U.K. economy, along with the news that the Bank of England might raise rates in February was released. The news that Australia reported record coronavirus cases came at close to the same time, and that resulted in opportunities for news traders to profit from their GBP/AUD positions.

Dogecoin April 2021

During one week in April, Dogecoin surged by 600%. Those who bought Dogecoin when Elon Musk began tweeting about it were able to make profits, especially since it was possible to buy large amounts of Dogecoin at a cheap price. Those who sold following the runup in price were likely to take profits before the subsequent drop in price.

Presidential Election November 2020

Following the election of Joe Biden in the United States, the U.S. Stock market, NASDAQ, USD and treasury saw gains. Additionally, the post-election bump for the stock market continued in the months following the election. 

Silicon Valley Bank

The Silicon Valley Bank (SVB) experienced a significant sell-off, largely attributed to the banking crisis and investor concerns over the stability of the US dollar. The bank, known for its strong focus on the technology and innovation sector, saw its share prices fall dramatically as investors moved their capital to safer assets amid fears of a looming rate hike. The SVB sell-off stands as a stark reminder of how macroeconomic conditions and monetary policy changes can significantly impact the banking sector and investor sentiment.

Brexit and news trading

In June 2016, voters in the United Kingdom decided to leave the European Union through a referendum. On the results of the vote, British stocks, along with the pound, plummeted. For weeks, news traders that focused on shorting the market and the pound were able to take profits. However, by looking at the history of Brexit, it’s possible to get a feel for winners and losers, and trade on that information. Some examples:

• GBP/JPY increased on the news that a deal between the U.K. and the E.U. was reached at the end of 2020.
• Specialized manufacturers could potentially see gains as requirements for qualifying products from certain origins.
• Financial institutions in the U.S. could see gains as a result of clients moving away from the U.K. 

Depending on the sector, and the situation, it’s possible to make trades based on what’s going on and ongoing developments. The trick in news trading is figuring out where the news is likely to have an impact and moving on the information while it’s still good.

How do you perform news trading?

When creating a news trading strategy, it is important to plan ahead and understand how news releases, as well as unexpected events, might impact different financial markets and assets. Here are some tips you can use to increase your chances of success as a news trader.

Be aware of sensitive news releases

Know when regular news releases are scheduled. Check calendars to learn when economic updates will be released. Pay attention to which reports are most likely to impact the assets you’re interested in — and how the news can result in different outcomes.

Earnings reports

Companies usually release their reports on a quarterly basis. When you have an idea of when these earnings reports are coming, you can plan ahead, being ready to make a move based on whether earnings are above or below what’s expected. You can also use this time to get an idea of sentiment and a general feel for trends.

Economic reports

These are reports about different aspects of the economy. Central banks, like the Federal Reserve and the Bank of England, often release reports regularly about how inflation and economic conditions will impact interest rate policy. Labour reports, manufacturing numbers, consumer sentiment measurements, and other reports can all influence how the markets perform and how individual assets are impacted.

Alternative news sources

Do not forget about alternative news sources like Reddit day trader forums and Twitter. One of the main drivers of the GameStop play was the Wall Street Bets sub-Reddit. By knowing what was happening and being in the loop, some news traders were able to make money. Pay attention to some of these sources to get in on the ground floor of big movements.

Educate yourself about the basics

Learning about the basics of trading, including a news trading strategy, can help you become more effective. 

Books

There are a number of books that can help you learn different strategies. Two of the best resources are Trade What You See: How to Benefit from Pattern Recognition by Larry Pesavento and Trading in the Zone by Mark Douglas. 

Trading courses

Many successful traders offer courses designed to help you learn strategies to make money in the markets, including using news trading strategies. However, you need to be careful. In some cases, fake gurus promise unrealistic returns the courses might not be worth what you pay.

Blogs

Read reputable blogs that have information about trading strategies and detailed tutorials about how to use those strategies. 

Forums

If you want help and insights from other traders, forums can be a good place to go. You can learn from fellow news traders and share what you have learned as well. Finding a good community of like-minded traders can help you learn and grow as a trader.

Newsletters

Some paid newsletters can be good sources of information. It is important to carefully vet where you get the information from, though, to avoid paying money to grifters who make outrageous promises. 

Podcasts

For those who prefer audio to reading, podcasts can be a good source of information. Look for traders who can document their successes and who are willing to be transparent about their trades and portfolios.

YouTube

Videos can be a great way to see trading strategies in action. You can learn from charts and by watching experts execute their news trades. However, you still need to be careful, since there are fake gurus who promise unrealistic returns in return for clicks.

Webinars

In some cases, free or even paid webinars can be good sources of information. The best resources will walk you through the basics and show you strategies you can use to take profits. However, you need to be discerning, since not all webinar presenters are reputable.

Establish whether news trading is for you

Once you have an idea of when you can expect to see scheduled news reports and economic announcements, and where you can go to get reputable information about breaking news, you need to figure out whether news trading is the right approach for you.

What do you have to be prepared to do?

Before deciding whether to become a news trader, it is important to understand what it will take to be successful. Here are some of the things you need to keep in mind if you want to become a news trader:

• Pay attention to various news sources in order to take advantage of trading opportunities.
• Learn how to use trading platforms.
• Understand how to read charts and confirm trends.
• Consider using a paper trading account or demo account for practice before using your money.

In general, a successful news trader needs to be able to stay up-to-date with news and information and spend time during the day to evaluate opportunities and make trades. 

Manage your expectations

Any time you begin building wealth through trading, it is important to manage your expectations. While you might hear stories of successful traders making tens of thousands of dollars a day, the reality is that only about 10% of day traders end up being successful, according to Larry Pesavento. 

Rather than expecting to become rich quickly, it is important to take it slow. Start with small trades and take small profits. This will help you get used to trading, learn how to evaluate news stories, and understand how the news impacts the assets and markets you trade in.

Risk management

Whenever you trade, you run the risk of losing money. In fact, depending on how you trade, it is possible to lose thousands of dollars. When day trading — including when using news trading as an approach — it’s important to reduce your exposure to loss. 

You can manage your risk by trading no more than 1% or 2% of your account at any time. Avoid over-leveraging yourself so that you do not end up in debt.

Select a proven strategy with objective rules for entry and exit

Successful news trading depends on using a strategy that has rules for entering and exiting trades. Too often, traders try to run profits or trade on emotions, rather than using objective rules for trading. Review different trading strategies and choose one that has clear parameters so that you make decisions based on logic.

Keep a trade journal

Note your trades so you can identify patterns and learn how to make the most of each position. Your trade journal should include information on how much you traded, your entry or exit point, the news event in question, and your gains or losses.

Which trading platform is best for news trading?

Any trader needs access to a broker. There are many online brokers that can help you learn how to trade the news. It is important to note, however, that you should also look for a broker with an easy-to-use platform and that allows you to execute trades in real time. 

Review your own needs and situation, and consider trading fees, ease-of-use, available assets, and news resources and tools. For a news trader, having access to an ongoing news feed and real-time analysis tools can be very helpful.

Open an account with a reputable broker

If you are looking for ideas on reputable brokers, here are a few ideas to help you get started with trading the news.

IG Index

IG Index focuses on Forex trading and is U.S.-friendly. You can create a demo account to practice, and they offer spreads that are up to 20% lower than some of the other brokers. This platform offers tools that can help beginners learn about Forex trading, as well as advanced resources for experienced traders.

eToro 

This platform was founded in 2006 and features a U.S.-friendly version. Even though eToro was primarily built with social trading in mind, it can still provide you with a user-friendly way to trade on the news. You can trade in more than 1,000 assets, including cryptocurrencies.

AvaTrade

Focusing on international Forex trading, AvaTrade has been around since 2006 and is part of the AVA Group of companies. You can use a number of trading platforms with AvaTrade, including MetaTrader 4 and MetaTrader 5, as well as the MetaTrader mob. It’s also possible to use automatic trading tools like API Trading and RoboX in conjunction with AvaTrade.

XTB

Providing access to over 2,100 global markets and more than 15 years of experience, you can trade in indices, forex, CFDs, and commodities. Additionally, XTB offers access to CFDs on cryptocurrencies and stocks. The platform is fully customisable and features fast execution, as well as performance stats and a trader’s calculator. 

FP Markets

With FP Markets, you can create a trading system and get access to real-time stats and risk management tools. This global online financial trading platform focuses heavily on Forex and CFDs and is regulated by ASIC.

NAGA Markets

This fintech company was founded in 2015 and offers access to financial markets and cryptocurrencies, as well as a trade in virtual goods. NAGA has a wallet that makes it easy for you to trade fiat and digital assets, and you can get access to a branded Mastercard that features instant withdrawals.

Forex.com

Forex.com prides itself on helping traders connect to Forex markets since 2001. As expected, the focus is on the Forex market, and this is a website that is U.S.-friendly and offers transparent pricing and the trust that comes with regulation. Advanced charting and other tools are designed to help traders make the most of their positions.

What are the risks with news trading?

The biggest risk with news trading is the fact that it is a binary event. You have a 50/50 chance of being right when you try to predict which way the markets or an asset will go after an announcement or a breaking news event. If you are wrong, then you run the risk of loss.

Additionally, undisciplined traders are more likely to lose money, since they are not following a strategy. You can also lose money if you are trading on margin. Being leveraged as a news trader can magnify your losses, which can be devastating if you’re wrong too many times in a row.

What are the typical characteristics of a successful trader who uses news trading?

In general, successful news traders are disciplined. They have a strategy and stick to it. Rather than trying to run their profits, they take profits when they are realized. Additionally, they are disciplined enough to cut their losses when they reach a certain point.

Many successful traders focus on risk management and limit the amount of their balance they are willing to risk. It is important to have a system and understand how news can impact the markets.

8 pro tips for successful news trading

If you want to be a successful news trader, there are some tips that can help you stay on top of your portfolio and increase your chances of making profits.

• Have a strategy in place

  Decide ahead of time what you want your entry and exit points to be. You can’t predict everything, but you can make decisions based on strategy, rather than on emotion.

• Know when important releases will be made

  Create a calendar of important economic releases, as well as when to expect company earnings. Know these dates so you can be prepared.

• Check the news

  Make sure to pay attention to what’s going on in the country and around the world. Know when an unexpected breaking news event could impact trading and provide opportunities.

• Avoid emotional decisions

  Try not to let kneejerk reactions rule you when trading. The news can be emotional, but you don’t have to be. Take a step back and analyze the situation.

• Know when to tune out the noise

  Sometimes you have to ignore the news. Being always tuned in can be rough on your mental health. Know that sometimes you can tune out and still have long-term success.

• Be prepared for the unexpected

  Markets don’t always react the way you expect. Be ready to exit a position if it goes against you, such as a market correction.

• Limit your risk

  Stick to a limit on how much you’re willing to risk. A good rule of thumb is never to risk more than 1% to 2% of your account value on a trade. Stick to that rule.

• Sell when you have profits

  It’s tempting to stick with something that is very popular. However, when you have profits, or when an investment reaches a certain level, sell. Have the courage to take profits — or you could end up losing out if the asset crashes.

Is news trading profitable?

News trading can be profitable, but you might not make millions of dollars as many people might claim. Instead, you might end up with smaller profits. Many people give up too early when they do not see the dramatic results advertised by trading gurus. A lack of patience and discipline can work against you more than almost anything else.

It’s important to note, however, that many people fail at trading. It can be difficult to stick with it, and, even if you do make profits, they probably will not be very big.

News trading: general terminology

Here are some terms that you might see if you decide to get involved with news trading:

• Black swan event. An unpredictable and major event whose consequences are severe and far-reaching. This is an event that takes place outside what is considered normal.

• Fading. As enthusiasm for a trend begins wearing off, a news trader will start to trade in the opposite direction of the current trend, expecting that the trend will reverse.

• News trader. A trader who makes decisions about entering and exiting a trade based on news announcements.

• Short sell. Trading a position in the expectation that an asset will lose value.

Conclusion

News trading can be a way to take advantage of short-term volatility related to announcements or unexpected events. By paying attention to the news, it’s possible to get an idea of what direction an asset or market will go, and then enter or exit a trade based on what’s going on in the country or the world.

However, news trading can be a lot of work and you have a 50% chance of guessing wrong and losing on the trade. It takes effort, discipline, and planning to be a successful news trader.

News trading FAQs 

Can you teach yourself how to news trade?

Yes, but it can be difficult. You need to know how to find reliable information and avoid pitfalls along the way.

How do I know when to news trade?

In general, the markets begin moving and trends start taking shape ahead of a scheduled news event. You can trade during the speculation, and then, after a major announcement, you can trade based on the news release. Additionally, any time there’s a big unexpected event, the markets will be in turmoil and that offers a chance to news trade.

How does news affect trading of bank stocks like Deutsche Bank and Credit Suisse?

News events, such as changes in monetary policy by the FED or ECB, or statements by influential figures like Janet Yellen, can significantly impact the price of bank stocks. For example, unexpected changes in interest rates or treasury yields may cause investors to reassess the future profitability of banks, leading to price moves.

Can geopolitical news, such as events in Ukraine, influence the trading of the Euro (EUR/USD)?

Absolutely, geopolitical news, especially crises like those in Ukraine, can create uncertainty in the market, impacting the Euro’s value against the USD. Investors may flock to perceived ‘safe-haven’ currencies during such times, causing volatility in the EUR/USD pair.

Does news related to tech giants like Microsoft affect ETFs?

Yes, significant news related to major tech companies like Microsoft can impact specific tech ETFs. For instance, robust earnings reports or product launch news can lead to a surge in Microsoft’s stock price, subsequently driving up the value of ETFs holding these stocks.

Can macroeconomic news impact commodity trading, like crude oil?

Macroeconomic news, such as changes in interest rates by central banks (FED, ECB, BOE), can indeed influence crude oil prices. For instance, if the news signals strong economic growth, demand for crude oil might increase, pushing prices higher.

Does real estate news have an effect on the stock market, especially in New York?

News about the real estate sector, particularly in significant markets like New York, can affect related stocks and sectors. For example, positive housing data might boost construction or real estate investment trusts (REITs) stocks, while unfavorable news can lead to a sell-off.