Trading the News
How important is it in trading?
Trading the News
Trading the news simply means keeping a close eye on current events and acting if a development is likely to have an impact on the market you’re trading.
- A CEO leaving a company will typically affect its share price, either in a positive or negative way depending on the context of their departure.
- Similarly, a currency’s value will probably change if the country’s government announces a significant policy change, like how the pound sterling fell following the UK’s Brexit referendum. This is something you have to be attuned to if you’re forex trading.
The long and short of it is that breaking news has a monumental impact on the markets and causes prices to shift in unexpected ways. By staying on top of the news cycle, you can act quickly and use the information to your advantage.
Trading the news explained - Quick links:
So, is this something beginners need to get on board with?
Absolutely! Some traders have a tendency to focus on historical data rather than current events, and swear by backtesting. This means testing out a trading strategy based on past market movements. If the strategy would have worked then, the assumption is that it should work now.
While backtesting can help you to gain confidence in a trading plan, the big flaw is that it looks at the past rather than the present. Your strategy might have been successful then, but is backtesting going to account for a company’s latest earnings report or a sudden natural disaster? Of course not!
In a nutshell, trading the news means you might be able to profit from an early insight before the market has time to catch up. It can be difficult to know where to start, but Trade Nation’s Smart News feature makes it easy. This exclusive tool collects all financial news stories as they break on social media, ensuring you never miss a development key to your trading interests.
How does trading the news work?
News can be divided into two categories:
- Recurring news refers to developments that are planned and expected but still move the markets, such as interest rate announcements, economic data releases, and company earnings reports.
- Unexpected news is a sudden event like a natural disaster, terrorist attack or the threat of debt default by an indebted nation.
In order to be prepared for both types of news, it’s important to know the dates and times of key events and keep track of developments via news outlets. This ensures you’re prepared and can respond as soon as possible.
Examples of trading the news
Please note: these are hypothetical scenarios for illustration only and investors should consider their trades carefully before putting on any positions.
However, always look at the bigger picture...
Always think about how your trade aligns with your goals. This means following your trading strategy, sticking to the entry and exit points you’ve established, and acting with your objectives in mind. Don’t try and make a quick buck with a concentrated position if you’re trading for long-term profits and do your best to avoid being overly influenced by market sentiment.
- Many investors exited their positions following the financial crash, but if they had waited they could have benefited from the 166% gains in the S&P 500 from March 2009 to October 2013.
Also, remember there’s no guarantee that the markets will move the way you predict after a news story.
- Take Jeff Bezos announcing that he was stepping down as Amazon CEO in February 2021. Normally share prices fall when someone of his stature steps down, especially when it’s a surprise. But in this case, Amazon shares were relatively unchanged.
However significant a news story is, never rush into a trade. You should still stick to your trading strategy, do your research, manage your risk, and only trade money you can afford to lose.
Introducing Smart News
Get ahead of the markets with alternative data. Social media can provide valuable insights that you may not come across in traditional sources. Important developments often break on Facebook or Twitter long before they’re reported by major news publications, so keeping track may allow you to make a move before the markets have time to catch up.
This is exactly why we have developed Smart News, a one-of-a-kind feature exclusive to Trade Nation customers. Smart News harvests all financial market news in one place as it breaks on social media, allowing you to immediately identify the developments that apply to your trading interests.
In addition to curated news feeds, you also have the power to create your own channels if there are specific areas you want to monitor.
Start trading with Trade Nation
Trade Nation is the perfect place for beginners and experienced traders alike to trade forex, commodities, indices and more.
In addition to our exclusive Smart News feature, our customers can also benefit from trading signals from the only major trading signal provider with FCA support, offering professional, unbiased insights into potential trading opportunities.
We also offer a wealth of educational resources suitable for all knowledge levels, low fixed spreads so there are no surprises in your trading costs, and a fantastic Customer Success team who are here to help whenever the markets are open.
Sign up for a practice account to test our platform without risking any money, play out a trade using our simulator, or opt for a live account to access all features and start trading!