The dynamic nature of financial markets is highly dependent upon the collective reaction that occurs towards the movement of the market as a whole. At the same time, the collective reaction of the investors towards the market is largely defined by the news and the media, owing to the immense power that it has over the minds of laymen. This emotional reaction that new 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, one of the most important aspects that come to the forefront is 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 of course, does not mean that there will be a definite rise or fall in the trend line. The high intensity impact of the news event essentially indicates a large amount of uncertainty owing to the way it influences the emotions of investors in diverse and often 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 most dire 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 identifying and making the most of the ripples that are released due to the same. These ripples are mainly noticeable on hourly or four-hourly charts and can be rode till the land of gains 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, whether it be forex trading, currency market or exchange rate. By determining stops below support for long positions, and above resistance for short positions, you as an investor can ensure that your losses are minimized when spreads widen or when prices succeed in breaking the pre-defined levels. This is known as the 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 those which abound during major news events, risks such as price slippage, unprecedented widening of spreads, and trend reversals are aplenty. Hence, by playing the long game and using the ripples of the news event to create your entry points can be the best way to capitalize or ride 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.