Pros and Cons of Trading News Announcements

Trading the news might seem like a great idea, but for the unaware newbie it could have dire consequences. Let’s take a dive into the pros and cons of trading the news, plus some hot tips on how to master the markets when things heat up!

 

Pros  

So if trading the news can be ‘risky’, why do people do it? 

 

The market moves erratically and with gusto when there is big news set into the economy. There’s traders looking for an advantageous position but there’s also businesses looking to use that information to push their next big financial move, whether it be into investments, between countries or how much they pay themselves that quarter. 

 

These big moves mean traders can enter positions and exit quickly with huge potential to earn big time. Swift currency pair movement often follows the announcement, so knowing a big move is coming (just not the direction) can be very useful for traders looking to earn from price movement (the very thing traders inherently do). 

 

Big moves can mean big dollars.

 

Cons

As above so below, the same is true with trading. If the event the market goes the opposite direction to your trade, it can happen fast. Traders that attempt to manually apply a stop loss after placing their order could get into hot water, while trading with set pending orders could mean missing out on a trade if the market moves even further than expected before you can enter your pricing and stops.

 

Big moves can mean big dollars, but is it in your favour or is the market swallowing your account? Trading the news can be an exciting time for traders looking to benefit from the volatile market conditions created by these announcements, so how can traders better prepare for these opportunities and reduce the risks of trading in high volatile periods?

 

Tips on How to Trade News Announcements

 

Bigger moves, bigger stops

When trading news, the market can often be more erratic and push through levels of support or resistance easier, so sometimes having a bigger stop can keep you in a trade longer. 

 

Who has the remote? 

Just like a TV, volume can be controlled in trading also. By reducing the volume traded to suit the potentially higher volatility, you can increase your chances of staying in a trade if it goes against you and have the possibility of having larger stop losses for the same amount of risk. 

 

Plan, then Execute

Waiting to see what the market does is fine, but you should go in with a plan, not react to whatever the market throws at you. Remember hindsight? It’s the thing people do when they look at charts and say “that turned around right on the bollinger band touch and support line”. But without planning it out and scanning the other time frames and indicators, you can’t use ‘hindsight’ to your advantage. When the market moves, you want to know the prices you would have interest in entering. If those prices aren’t reached or the market doesn’t give you a clear signal to enter, chances are you could be better off waiting for the next major announcement or opportunity. 

 

Practice Makes Perfect

By practising the same, or similar market conditions and trading with the consistent risk, you can see whether you are improving or not over time. Tweak and adjust your entries and exits if need be, but maintaining consistent risk is important in being able to determine improvements in your skills over time.