How to Trade the News like a Pro

Here at Building a Trader we actively discourage traders from concentrating on news events. The reason is that news trading is a tricky business, now more than ever. Gone are the days when a strong deviation on a GDP print or CPI print was capable of generating a 50 pip+ move. News trading has become a realm of machine-reading algos which react within nanoseconds.

In today's world, scheduled news releases rarely present opportunities that the average Joe can trade because algorithms know exactly how much of a reaction the market should move based on how far the actual news release deviates from consensus.

Unscheduled News Releases

Instead, unscheduled news releases present opportunity, but not every piece of news is tradable. It is essential to understand which pieces of news will most likely be market moving, and which ones to ignore. Also, it is essential to understand the current consensus (what’s baked into prices already).

Unscheduled news releases can come in many forms:

• tweets from influential political figures;

• Progress on a new fiscal package in Washington;

• Brexit headlines;

• Vaccine news;

• speeches by central bankers;

• geopolitical events;

...basically any important update on the main themes the market is focusing on. The most essential ingredients you need to know, in order to understand and react appropriately to an unscheduled news release, are:

• what the market is focused on at any given moment in time (for example, at the time of writing, Brexit is top of mind while any macroeconomic data is of secondary importance);

• what is already priced in (for example, analysts currently still expect a last-minute deal).

The Proof is in the Pudding

Here are 2 recent examples of how unscheduled news releases can provide trading opportunites.

On November 23rd on AstraZeneca reported vaccine efficacy over 70%, with 1 dosing regimen showing efficacy of 90%. By knowing how to follow market sentiment, you would have known that vaccine news was high on the radar because the sooner vaccines can be distributed, the sooner lockdowns can end and the sooner economic activity can reach pre-Covid levels. As such, this news was extremely positive for risk-assets.

Above is the 5minte chart of the Dax on the news. The slower you are to react, the worse your risk-reward will be because the market will move to a new equilibrium level quickly. Usually, reacting within the first 1-5minutes is required.

Another example is from the Pound on December 9th/10th. A late-night meeting between UK PM Johnson and EC President van der Leyen resulted in a negative tone, and the markets (which were hoping for a more conciliatory tone) were caught by surprise, and had to start pricing in the potential for a "no-deal" Brexit.

The above chart of GBPAUD shows just how much movement a news release can create, when the market is caught off-guard. The immediate reaction generated a 100 pip move, but the follow-through was also extremely large, with prices declining another 300 pips the following day.

The Best Tool to Capture these Opportunities

If you're serious about trading, then you need real-time news, and Building a Trader has partnered with TradetheNews.com in order to offer members a 50% discount on any subscription purchased. There really is no substitute for a professional real-time squawk service, if you're an active trader or want to take advantage of unscheduled news.

Click here for a preview of the TradeTheNews Dashboard.

The Second Best Way to Follow Market Sentiment

Of course, not every trader has the opportunity to be in front of screens for hours at a time. That doesn't mean following sentiment isn't important - it's just as important because trading the followthrough (as noted in the GBPAUD example) can be extremely profitable.

But if your trading style is more relaxed, you don't necessarily need a professional tool for following the news. In this case, the second-best resource is a well structured Twitter Feed.

Here is a list of twitter handles to follow, in order to maximise the Signal Ratio, and avoid Noise.

@FCILTDUK

@PriapusIQ @dmadden_CMC @followingfx

@tgmacro

@crescatkevin

@credittrader

@cnbcnow

@ciovaccocapital

@c_barraud

@biancoresearch

@bbcbreaking

@ameliabordeau

@adamlinton1

@2bid8offered

@jsblokland

@northherofx

@Schuldensuehner

@YanniKouts

@katie_martin_fx

@fxmacro

@ForexLive

@Gerry02140

Over to You

At Building a Trader we attempt to give you all the tools and education necessary to become consistent in your trading and overcome the myriad of bad habits and mental blocks that keep most aspiring traders going around in circles.

We also have a partnership with FCI Markets UK such that consistent traders that have worked with us can qualify for a fully funded account.

If you're serious about transitioning from a retail trader to a professional, funded trader, start here.