News trading - an introduction

News releases can have a big impact on the financial markets, often increasing volatility dramatically within seconds and sometimes changing the price direction entirely.

Trading the news: a different discipline

Trading the news is an entirely separate discipline to everyday trading. Even if you decide that this is not for you, news is not something that you can ignore completely.

You still need to be aware of when they are due and how they could affect existing positions in the market.

Different kinds of news

There are three main categories of new, scheduled events, anticipated but unscheduled events and unforeseen events.

Scheduled events

These are news events that have a pre-scheduled publication times that you are aware of in advance. This includes economic figures such as interest rate announcements that are published on a regular basis.

This type of news is relatively easy to prepare for when planning your daily schedule.

Anticipated but unscheduled events

These are news events that you know are coming soon, but you are not sure exactly when to expect the details that will affect market prices.

These include political meetings, such as summits attended by heads of state. Traders are usually aware of when these meetings will be held, but cannot be sure exactly when any decisions from the meeting, that would affect the markets, will be announced.

This type of news event is more difficult to trade than pre-scheduled news, especially for short-term traders, because, it is more difficult to decide where and when to enter positions and any trades you make carry a higher risk.

There is of course the option of staying out of the market entirely until any such news is eventually released.

Unforeseen events

These are news events that are completely unexpected, such as out-of-the-blue announcements from central banks or news of natural disasters or acts of terrorism.

These are by far the most difficult news events to trade, as it is impossible for you to actively prepare for their publication or impact. All you can do is react following the announcement.

Some news has more impact than others

You can also categorise news in terms of how much impact it has on the markets.

For example, big macroeconomic indicators that give you a general view of the health of an economy – for example the monthly US non farm payroll report – can have a huge impact on market prices.

The release of data on new housing starts or house prices, or government announcements of new initiatives for the market also have a big impact.

However, industrial production, while important enough to move prices, will not have as much of an impact as unemployment or housing figures.

To a certain extent the impact of the news on the market will depend on which asset class you are trading.