News Stock Trading Strategy

News Trading is a commonly used stock trading strategy, applicable especially for day trading and Forex trading. It is especially popular among beginner stock traders because of the lure of big profits in a short amount of time. It relies heavily on being in the right place at the right time.

Just like anything else that sounds too good to be true, this strategy can also be a way up or down. Make sure you read below to find out why this type of trading can be very risky and rewarding at the same time.

The first thing you have to realize, is that if you're sitting home and hear a news release on the television that you think will move a stock higher, that you will not be the first one to hear this news.

Professional traders, hedge funds, money managers and institutions with larger financial backings than you and I, will have access to news releases much sooner than we will. This is not a big deal, as long as you realize this before making a decision to buy or sell a stock to trade the news.

Here is an example of a stock that jumped to the downside on a news release. Further details on this particular trade are presented on a separate news trading example page to explain what happened here:

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One of the things you can do to help give you a bit of an edge is to have access to a real-time news service. This can be through your online broker account or as a standalone service through companies such as Briefing.com for example.

Ensure that you have access to a real-time news service. Now what? The next thing to remember is that you will still likely to not be the first one to hear the news. This is always a possibility so you must take it into consideration before doing any news trading.
Moving on, you now hear a news release that you feel will make a stock move higher. You quickly pull up a chart, and notice the stock is in fact moving higher. You type in you order information and place the buy order quickly. You take a look at your order status and see that your order was filled, great.

Wait a minute. If it was so great, then how come when you look back at the stock chart, you notice the stock is now going down... You just managed to buy this stock at the top, congratulations!

So what happened? Well, between the time the news was released and the time your order was filled, several seconds, or even a minute or two went by, and the big traders were already selling and taking profits by the time you jumped in. You managed to buy shares from a professional trader who just made some money.


Not that this happens all the time, but it happens a lot. Multiple times the news release to the general public, you based your trading decision on, has already leaked to more expensive news services that you do not have access to. In other cases, traders may be trying to understand the news release and change their view after they enter the trade. There are also many traders whose target is only a few pennies per trade.

Many professional traders consider that news trading strategy as being too risky, but other deem that you have a chance to be ahead of the massive public reaction if you investigate the available data in depth and apply your knowledge instantly at spot. That will increase your probability of being profitable while news trading.

Pay close attention to news on specific sectors or stocks on a regular basis, to increase your odds of success, combining it with your other technical and fundamental approaches. This makes it easier to you to see how the stocks or sectors react to different types of news as it they released. Apply your knowledge and use common sense, taking in account other risk management rules and practices, and you could make a nice personal trading strategy trading the news.

Another way to do news trading is to watch a stock as it moves irrationally on the initial news, and get in on the opposite direction of this move. For example, a stock jumps up 5% higher on a news release within seconds, instead of placing a buy order and risk buying at the top, you place an order to sell short, trying to get in at the top and before a retracement back to normal levels.

This is a simple example and in reality you would try and wait for the stock to start its decline before going short, but the idea is the same - look for a reversal from an irrational move. Many times taking the other side of the directional movement based on news is the better choice. Not always, but quite often.

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