I am sure you’ve heard of it. The term “trade the news” refers to those guys who would rather read newspapers all day instead of sitting behind the charts for hours trying to make sense out of red and green lines… Wrong. Well, partially. Yes, it refers to those guys - which are also known as “fundamental traders” and who should check on charts to ensure a proper trading.
First goes first. Just read it: trade the news. In order words, it means traders will be using news in order to open short or long positions. But wait a minute… which can of news?
Two types of news:
1) Recurring news: These are news that are typically scheduled in advance and repeat week after week or month after month. For example, initial jobless claims can be seen as recurring weekly news, while the NFP report would be recurring monthly news.
2) One-time news: These are news that come out of the blue - unexpected events. For example, terrorist attacks or tsunamis or tropical storms. Their impact tends to be stronger than recurring news due to the intensity and surprise factor involved.
So… how to trade each of those?
1) Trading recurring news is quite a common and easy practice for professional investors, because it requires you to be sharply informed, but without pretending that your monitor is your girlfriend (aka technical traders). For this type we suggest:
- Keeping a calendar: always know exactly when these events are happening
- Knowing technical analysis: if there are support/resistance levels, you should know about it in advance - remember, technical is AS important as fundamental
- Following a strategy: it doesn’t matter if you are trading the news or fishing dorados - you should always have a plan to follow. If you don’t… what are you waiting for? Define your goal and how you pretend to get there. What are gonna be your parameters to open and close long and short positions?
2) One-time news… oh boy! Well, the best way to trade an unexpected event is to:
- React as fast as possible: it is all about momentu
- React with your head, not your heart: yes, I sounds terrible - but if you want to make it by the end of the session, then you have to leave emotions aside.
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