Whenever there is some event, news, or report that affects the market I am never 100% sure how to respond. Quite often there is some big candle right after the event. Somehow able I am never able to jump in fast enough to take advantage. And after the big candle there is usually a period where my indicators are a little less reliable because the immediate reply to the event could be just noise. It makes the numbers funny for a while.
Take this morning. There had been some indication of a slowing and possible reversal in the recent up moves. But after Bernanke's report there was a spike. Now in this case I did okay just waiting for a short signal. But I wonder in general what people approach to news really is. Do you ignore it? Try to jump in and make a quick buck? or what
As you have observed news blows up technical indicators, for a little bit, eventually the market settles and the indicators come to their senses (or I do). I get out of the market before the news item.
"Money is better than poverty, if only for financial reasons." - Woody Allen
The following user says Thank You to Tasker_182 for this post:
If you have built a strategy around trading news, then sure, go for it. But as far as 'jumping in and hoping for a quick buck',...that's just asking to lose money.
Personally I have the following approach to high impact news:
- No new trades 20 minutes prior to news
- No new trades until 5 minutes after news
- If im already in a trade 20 minutes prior to news and my stop is already at break even or better, continue managing the trade
- If im already in a trade 20 minutes prior to news and my stop is not yet at break even or better, look for the best exit possible. ie: get out!
You donít trade the markets; you only trade your beliefs about the markets.
- Van K Tharp
The following user says Thank You to DarkPoolTrading for this post:
You don't have to respond to news in my opinion; but just avoid it altogether!
As previously described, it is best to stay out of the market prior and after news release (5min to 15min is common practice at many funds)
You will also notice, if you watch level 2 data, that markets often dry out before a news release, volume is low, and this is a sign that everybody is out and/or waiting. The high volatility and rush of volume as you would expect comes obviously after the news release, as each trader start to take the side he believes is the most profitable as per his reading and understanding of this particular news of course.
You can do the same, but don't be the first one to step in, let it play for some time, few minutes or so, and then evaluate the charts, the support and resistance levels, the path of least resistance, and so on... then go for it!
It is important to mention, that market reaction to news is pure gambling sometimes.
You cannot assume that a good news would push the stock higher, and a negative one would crash it down. Also, being a simple retail investor/trader, we unfortunately do not have VIP and insider access to the back scenes as big finance professionals do - no matter how they try to convince us and market the idea of a fair regulation on this regard, I just don't trust it, sorry.
To reiterate, the news in itself is not really important, no matter what it is, what matters most is the reaction of the market to this news, and since most of the time this news is already discounted in the price... one would be surprised of how many times the reaction is opposite to what we would have thought.
I believe this removes the option of logically evaluating the impact and importance of the news in itself for a short term trade initiation. you anyway don't have time to do it, as everything happens so fast!
The other option, of just watching the chart as it pops and then enter with the trend is very dangerous and unpractical too: as technical IT delays would first be a problem, I don't know about your connection to the exchange, but I have a relatively high ping delay from where I stand; and either case, if you want to watch it pop first then it has already happened, and you will be coming too late to the party. Risk of reversing on you with high momentum is quite high. Remember that market makers do know this about amateurs too, and they often move the market in the opposite direction for a few minutes before they bring it back to their intended move... But not always so you can't make a rule out of it to outsmart them - if they do it randomly it is for that purpose hehe.
Finally, just for the sake of example, and to perhaps give you some ideas:
What I personally do is find myself a good support level under current price, and another good resistance level above current price. then I place an OCO order Buy and Sell respectively at these levels, but I repeat they should be real good levels, because news can blow through weak levels.
You can be sure that more often that not, the news release would make the price reach the level perfectly and then pulls away from it with high energy. So instead of playing the pop to the resistance level for example, I play the pullback from it and vice versa.
This remains purely technical, unbiased to the news and thus in perfect harmony with my trading style and strategy. And news release in that case would have simply accelerated my fills at my desired technical levels.
Successful people will do what unsuccessful people won't or can't do!