News Trading Strategy Guide
News trading is trading on economic news. Think of interest rate decisions, NFP figures, inflation data, and more. It can yield quick profits but is also risky.
What Is News Trading?
In news trading, you open positions around important news events. The idea is that big news causes big market reactions, which offers opportunities.
Important News Events
1. Non-Farm Payrolls (NFP)
The NFP, every first Friday of the month, is one of the most volatile news events.
2. Interest Rate Decisions
Central bank interest rate decisions (Fed, ECB, BoE) can hugely influence the market.
3. Inflation Data (CPI)
Inflation figures influence expectations about interest rate decisions.
4. GDP and Employment
Economic growth and employment figures provide insight into the health of an economy.
News Trading Strategies
1. Pre-News Positioning
Some traders position before the news. This is risky because you do not know what the news will be.
2. Post-News Trading
Wait until the news is out and the first reaction is over. Then trade in the direction of the trend. This is safer.
3. Straddle Strategy
Place a buy stop above the current price and a sell stop below. When the news comes out, one of the orders is triggered.
Risks of News Trading
Slippage
With big news, price can jump significantly, leading to slippage. Your stop loss can be filled at a much worse price.
Spread Widening
Brokers widen the spread significantly around news events.
Whipsaw
Price can first move one way and then abruptly reverse.
Tips
- Check the economic calendar daily
- Close positions before big news if you are not a news trader
- Use smaller positions for news trading
- Wait for the first reaction before entering
Conclusion
News trading can be profitable, but it is one of the most dangerous forms of trading. Make sure you understand the risks and start with small positions.
