How to trade on the news

Profitable news trading strategy

Why news is not for beginners

It is sometimes extremely difficult to predict the price movement driven by strong economic or political news. High-speed robots frolic here, trying to grab their jackpot in seconds. But an ordinary person has a hard time.

And why? Because the price of strong news often shows completely chaotic behavior. The price rushes up and down, showing wild shadows and long candles that fly wherever they want.

News trading has extremely many risks


What news to trade

About where to watch the news, we already understood in the lesson about fundamental analysis. For this we need economic calendars.

Since only the most important news strongly affects the market, the rest can be completely ignored, because there is less sense with them. Of course, the key news of the world is the data on the American economy, for the US dollar is the key reserve currency of the planet

There are only 5 main news that always affect the market:
NFP — NonFarmPayroll (change in the number of people employed in the non-agricultural sector).
Заседания FOMC.
Trade balance data. CPI — consumer price index.

Retail sales data.

We are also interested in (recall the fundamental analysis):
discount rate data;
any meetings of the Central Bank;
inflation data;

geopolitical news (war and disaster); GDP data.

What currencies to trade on the news Those in which there is a dollar, since these are the most liquid currency pairs and the news affects them in the first place.
These are couples like:


15 minutes rule

It is very simple. We do not trade 15 minutes before the news release and 15 minutes after it. This is considered, by the way, as a more risky period (the 30-minute rule is more conservative), however, it allows you to capture part of the frantic movement that the news gives the market, but in a more relaxed form, because some time has passed.

So, having determined the important news, you just need to wait and enjoy the picture, how the price bears, how abnormal, throughout the schedule, knocking out stops in forex and shocking beginners. 15 minutes after the news release, as a rule, there is a rollback against the news trend – those who wanted to play enough, the others carefully feel the reversal. However, it is often short-lived.

30 minutes rule

Personally, we recommend the 1 hour rule and do not enter the hour before and after the strong news. But there are exceptions. If you see that the couple has sluggishly reacted to the seemingly current news, waiting for so long is not necessary. As a rule, before the release of certain news, the market comes to some consensus and focuses on the forecast.
Let’s say Apple is about to announce the release of a new iPhone and everyone is frozen in anticipation. And the prices of its shares are rising even before the news, just on expectations. However, an hour or half an hour before this news. Everyone begins to speculate, sell / buy on these expectations, and prices are jerking back and forth and it is completely unclear what to do with this. But nothing – for that rule is used.

Half an hour after the news was released, the main speculators calmed down, the price begins to come to its senses, but it still has a good momentum for the movement on which you can ride. For half an hour, investors evaluate the essence of Apple’s presentation and come to the conclusion whether it is necessary to buy its shares or the new iPhone is so disgusting that it is better to get rid of them immediately. They often trade on disappointments.

Buy rumors, sell facts

This is almost the main principle of news trading, which is difficult for beginners to understand, that they do not understand the essence of what is happening with the price until forecasts and real data are announced. Conventionally, news trading can be divided into 3 types: before the news; exit period; after the news release.
It is not so important what exactly happens to the price during these periods, it is much more relevant whether movement against the older trend is visible or not. If we are in a growing market, and before the release of important news there is a sideways view – consolidation, then investors are waiting for the positive news to come out and focus on this.

At the same time, the release of negative news against strong positive expectations will lead to the fact that these expectations can simply “swallow” the news and the market will not notice it.

How the news works

The whole process of perception by the market of news can be divided into the following stages.
1. Waiting Imagine that important economic data will be published soon, for example, on GDP, unemployment, consumer prices and so on. The news is still a few days away, but experts are already starting to make and publish their forecasts. This means that all traders in the world – including institutional players – even before the news release get an approximate understanding of what awaits them. Suppose we are talking about the US trade balance, the deficit of which, experts expect, will decrease. This is extremely positive news, which always gives a powerful positive impetus to the entire market, strengthens the dollar and so on.
2. All the trickiest: opening up to the news Investors understand that if the forecast comes true, there will be a powerful increase in prices for certain assets. However, they also know that you will buy them at the time of the announcement of such news, because the most active ones will sweep out liquidity by robots in a second and most will be left with nothing. Therefore, many, trusting expert analytical forecasts (such as those published by Bloomberg and Reuters), prefer to open deals even before the news. As a result, often within 1-2 hours before the news release, the price begins to rise – because demand is growing.
3. Even trickier Some investors also understand the second point. If everyone starts to buy in advance, then the price will not be so pleasant, so they try to buy even earlier. By lengthening, thereby, the reaction of the market on a timeline. And what happens? The important news comes out on Friday, and on Monday morning the first, most cunning trader begins to open positions in anticipation of growth. Here you have the long tail of the news reaction of the market. This trader is joined by more and more new ones, the market accelerates corny on expectations.

4. Everyone is ready As a result, before the news, many investors have long bought what they wanted, and prices rose in advance. When the news comes out, for many it’s a light bulb: they have worked on an increase based on expectations and are ready to close the position at any time, even if the profit is slightly less. This explains what you often see. The important news comes out, and the market … almost does not respond, why? Because everyone who wanted to participate opened positions in a few more days. Therefore, the news outlet itself does not play a special role for them.

5. News release When the news comes out, one of three things always happens:
1) data is better than forecast;
2) data match forecast;
3) data worse than forecast.
What if the data matches? Suppose the news is positive. However, all who bought in advance counting on this news have already taken their profits. And they do not see the potential for further price increases. On the contrary, they close deals that were opened a few days ago. It turns out a fun situation.
The outlook is positive, it coincided with real data, and the price … is falling, because investors are massively closing buy orders. However, the fall does not go to Monday levels, since not all purchases are closed – some hold the position further, in the hope of a long-term news effect.
If the data is worse than forecast, buyers are in the minority. On the contrary, everyone wants to profit from a downtrend and weakening asset. As a result, prices may fall, and even lower than they were a few days ago.

Sometimes it will take only a few hours to fall – there is a crushing sale. Finally, when the news is better than the forecast, everything becomes even more complicated, because many factors are connected. Usually the price continues to rise, but hesitantly, regularly rolling back when traders will exit the “long” positions, taking the profit