Trading the News – Learn How to Catch the Right Market Moves
News trading is one of the most commonly used and most successful strategies in the Forex/Binary Options markets — and for good reason. Trading the news is one of the best ways to capitalize on the changing economic fundamentals that can be found in individual companies, entire countries, or the world as a whole. Traders that are able to establish positions quickly once important data reports are release can often enter the markets as trends are beginning.
From a price standpoint, this is one of the best ways of letting your profitable positions run. If prices reverse, it quickly becomes apparent that the initial move was a false breakout — and positions can then be closed. This creates risk-to-reward scenarios that reach practical ideals. Since not all trades can be winners, your job is to maximize the successful trades, and limit the impact of the losers. News trading offers some excellent ways of doing this.
What’s Considered News for Binary Options Trading?
The trick to news trading is knowing in advance what is actually going to move the markets. Unfortunately, this cannot be done with 100% precision. But, if you are doing your regular market homework, it becomes much easier to see what is on the minds of most traders. I would like to be able to tell you that certain economic reports are going to be important all the time — but this simply just isn’t the case. The general market narrative is always changing and this means that the data or news events that will move markets will always be changing.
Events like military conflicts, jobs numbers, interest rate decisions, and GDP reports tend to have the most impact. But there will be many cases where even these reports are overlooked in favor of other information (Follow Bogdan’s Top Events of the Week). Essentially, there is no substitute for your daily “market homework” in determining what information matters, and what is just “market noise.” Most importantly, what you want to look for is the relevant information what can critically impact the asset you are trading. What moves stock markets is not necessarily going to move gold of the Euro. In many cases, the same event will influence two different assets in entirely different ways. Again, here, there is no substitute for your daily “market homework.”
Where to Find the Breakthroughs?
Market breakthroughs (essentially, the beginning of new price trends) occur when investors are focused on one area of the market. For example, if the broad majority is waiting for a key inflation report, and then that report comes in differently than the general expectation, we can expect an explosive price move to occur. This is because the market environment has changed, and investors are now being forced to re-position for that change. The resulting influx of new orders is what creates market volatility and establishes the new price trend.
But there is no sure-fire way to know which event is on the mind of most traders. One way to know is to simply read the daily news. What is everyone talking about? This is usually an excellent indicator. Another method is to watch price activity itself. Have asset prices slowed more than normal? This is often an indication that investors are holding their positions and waiting for key information to be released. These types of events are essentially the “calm before the storm” that generates the new trend in prices.
Catching the Trend, What are the Risks?
Once the important information is released, your job is to catch the trend in its earliest stages, and then ride-out that trend as long as you can. This strategy can be taken on any time frame. But one thing that should be noted is that those using shorter time frames in news trades should (usually) limit their positions to the same trading session. The reasoning here is that markets tend to over-react in the short term and then “correct” themselves in the following session. Longer term traders don’t have to worry about this erratic market behavior as much, so for those with a more conservative approach, this would be a better strategy.
Conclusion: Trading in Groups Removes Some Risks Seen in News Trading
As always, it is a good idea to trade with a partner or a group so that you can bounce ideas off of one another. Volatile market events can be exhilarating and emotional in very short periods of time. This can limit your ability to be objective, hurt your trading strategy, and lead to losing positions that were originally gainers.
Following your fellow investors on CommuniTraders is a good approach to take, as you can discuss the current market activity, assess whether a trend will continue or reverse, and then position yourself accordingly. News trading carries more risks than other approaches because you will inherently be trading at times when the market is most volatile. But there is also an incredible potential for gains because these are the times when new market trends are born.