Financial news releases can significantly impact your investments.
But whether that’s good or bad depends on your trading strategy.
Here are a few guidelines for trading financial news releases with minimal risk.
- News releases often influence traders’ sentiments within seconds, leading to swift reactions that push prices up or down. Thus, understanding how the market interprets news — positive, negative, or neutral — can give you valuable insight into where prices will head following a major news release.
- Learn to analyze information quickly and execute trades promptly. A good approach that’s worked for me is having a well-defined strategy (with predefined entry and exit points) that streamlines decision-making.
- Trading during news releases can expose you to volatility. Hence, effective risk management is essential. You can set stop-loss orders to limit potential losses and protect your capital. Also, avoid overleveraging and ensure position sizes are appropriate for your risk tolerance level. Proper risk management protects you from unexpected market swings.
- A blend of technical and fundamental analysis gives you an advantage. On the one hand, technical indicators can help identify key support and resistance levels. On the other hand, fundamental analysis aids in understanding the impact of news on market sentiment and price action.
- Level-headedness is the name of the game. The markets fluctuate a lot during news releases, and it can often feel like you’ve made the wrong call when the charts take an awkward turn. Hence, emotional reactions and impulsive decisions might turn a potential winner into a double or triple-digit loss. This is why it helps to maintain composure and stick to your trading plan regardless of the intensity of market movements.
- In line with the last point, please note while it helps to stick to your trading plan, the markets react differently to various news releases. For example, oil prices usually increase when OPEC announces oil production cuts.
But prices fell when Saudi Arabia and Russia announced they’d deepen production cuts last month. The production cut was voluntary, and there was uncertainty over whether the cuts would occur. In other words, if your strategy targeted the upside for oil price increases, you might need to adjust your strategy to fit the market’s reaction to news of production cuts.
This isn’t an emotional reaction. Instead, you’re being flexible and strategic, allowing you to capitalize on opportunities with less risk.
The bottom-line is to be prepared for surprises.
Because even with thorough market analysis, unexpected outcomes can occur during news releases.
As such, it helps to have contingency plans and be ready to react swiftly if the news deviates from your expectations.
And, of course, experience remains the best teacher.
Continuous practice (with a paper account and smaller positions as your confidence grows), plus exposure to various market situations, will enhance your ability to maximize opportunities from the news without taking unnecessary risks.
For more insight, see how we trade the news for reliable cash flow.
Wishing you a blessed and profitable day,