The dynamic nature of financial markets is highly dependent upon the collective reaction that occurs towards the movement of the market as a whole. The collective reaction of investors towards market is largely defined by the news and media, owing to the immense power that it has over the minds of laymen. This emotional reaction that news media has the power to instigate, is often used as the perfect cue for investors to make a move or decision, be it sell or buy. But once we move away from the basic and simplistic connotation of news trading, several important aspects come to the forefront. Some crucial aspects that can be highlighted, include the inherent complexity and uncertainty associated with this form of trading.
How to Approach News-Based Trading
- Expect Chaos, Lots of It: Most news events or press releases that impact the market are of high intensity, which does not mean that there will be a definite rise or fall in the trend line. The high-intensity impact of news events essentially indicates a large amount of uncertainty owing to the way it influences the emotions of investors in diverse & unpredictable ways. The movements of the market are bound to be erratic. So make sure you are apt at risk management and hone the capacity to capitalize, even in the direst situations, when you approach news-based trading strategies.
- Worship Time, to the “T” – One of the best ways in which you can capitalize on news events and their impact on the market is by making the most of the ripples that are released. These ripples are mainly noticeable on hourly or four-hourly charts and can ride to the land of gains. The only way to do so is by being vigilant enough to identify a trend when it first emerges from the abyss.
- Make the Most of Resistance and Support: The two golden keys of news trading strategies are resistance and support, be it in Forex trading, currency market or exchange rate. By determining stops below support for long positions, and above resistance for short positions, you can ensure that your losses are minimized. Such an assurance is guaranteed even when spreads widen or when prices succeed in breaking the pre-defined levels. This is known as straddle strategy and is considered to be one of the most significant news trading strategies to use when you trade news.
- Play the Long Game: When playing the short game, especially in volatile market situations like the unprecedented widening of spreads and trend reversals are aplenty. Hence, by playing the long game and using the ripples of news events to create your entry points can be the best way to capitalize on riding the trend to the end. Define your breakout points before the actual news report is released and use these to determine how the market is reacting and where the opportunities are emerging from.