How to make money on stock market news

As you know, you can often see sharp rises and falls in stock prices on stock exchanges. This is often due to various economic and political events that take place in the world. The value of securities can be affected by news of rising unemployment, decreasing inflation, the end of a high-profile lawsuit, the release of a new product, changes in interest rates. Such events cause excitement, which, depending on the scale of what happened, can be short-term or, on the contrary, long-term. The currency market is the most active in reacting to external factors.

Often, savvy investors base their strategy on media coverage. The ability to analyze the market and use the data in your work is very important. Trading the news can be very profitable. By adding the study of global economic data to charting, a trader can realize significant profits.

What is trading on the news?

To understand how to trade on the news, it is important to understand the essence of this technique. It is based on building a strategy on the basis of the latest information about stocks and exchange rates. Traders’ attention is focused on the release of economic reports, reports on changes in the management of companies and stock splits, unexpected geopolitical events. Recently, even messages in social networks can affect the stock market. There have already been stock price drops following statements made by Ilon Musk on Twitter.

Some experts believe that the strategy of trading on news is a type of fundamental market analysis. It helps to assess the main economic, social and political factors that affect the value of a particular asset. But still, this strategy has distinctive features. In particular, the standard fundamental analysis is carried out in the long term, many factors are taken into account, and forecasts are rarely changed. Whereas the perspective based only on news is short-term, and its influence changes very quickly.

How to track news for trading?

On one hand, watching media can be a simple task. It is something that any person does on a daily basis. But on the other hand, if one plans to understand what is happening in the stock market based on this data, then one needs to know which news is best to trade on.

In general, all messages fall into two categories:

  • regular. These are scheduled releases of new information, such as publications in economic calendars, analytical compilations, quarterly reports on companies’ activities. Specialists who constantly monitor such data can forecast changes in stock prices, make decisions on buying/selling assets, and avoid risks. It is especially important to understand what trends prevail in the country’s economy. For example, if it is expected that in a day or two they will announce an increase in the inflation rate, it is possible to buy or sell assets in advance;

  • unexpected. The appearance of such news is difficult to predict. They include information about major disasters, the beginning of hostilities, terrorist attacks, developing geopolitical conflicts, pandemics. The list can be continued, but all these events are united by their sudden appearance, scale, impact on all aspects of life. Because of their suddenness, it is virtually impossible to prepare for them, and they cannot be predicted. In fact, these incidents provoke the appearance of the black swan effect. According to experts, the best strategy is to realize the inevitability of such events and develop a stable investment plan taking into account their inevitability.

To use template messages in your work, it is worth taking care in advance of a unique program that collects unique information from primary sources (news agency sites, social network accounts), and to have constant access to the exchange server. The publication of such data does not have a long-term impact on the market, so trades are carried out in the shortest possible time and most often with the help of “trading robots”.

News trading basics

Decisions to buy/sell assets can be made both before and after the publication appears. Implementing such a strategy may require a trader to be quick and willing to take risks. When figuring out how to trade on the news, it is important to know the basics of working on the stock exchange. For example, data-driven trades are particularly effective in volatile markets, such as oil.

The most common way to use news information on the stock exchange is to set up alerts on verified resources that are thematically related to the stocks or companies you are interested in. It is necessary to collect data about:

  • the release of regular earnings reports, including analytical forecasts of changes in the company’s financial condition. It is best to “play” ahead of time, following the principle of “buy the rumors, sell the news”;

  • corporate actions. Attention should be focused on stock splits, mergers and acquisitions;

  • government economic reports. Employment statistics, GDP status, inflation index and other macroeconomic indicators are important for the stock market.

The data from the last block is especially relevant for trading on the currency market.

Rules of news trading

For beginner traders, so that they can figure out which news is better to trade on, we can advise:

  • gather information in advance about the dates and times of key market events. The best way to do this is to use economic calendars posted on trusted resources;

  • calculate possible options in advance and decide on a strategy. Fix for yourself the entry and exit points in the trade before the action starts;

  • avoid impulsive reactions. Investment decisions should be rational;

  • limit the level of risk. At the same time, you should try not to give in to the temptation of making a quick buck by taking a concentrated long or short position. It is possible to put a stop-loss order in advance, which will help to limit losses, if the plan of rapid enrichment will not be realized.

Finally, in order to understand how to trade on news, we need to remember the main rule – we live in the era of information explosion, when the effect of publications is extremely short-term. Therefore, sometimes it is very useful to ignore the message and let the next wave fade out.

Pros of trading on news

The main advantages of such a strategy are related to opportunities:

  • to make a profit in a short period of time;

  • plan ahead because most of the time regular data is updated predictably in time.

To summarize, let us clarify that even a novice can apply this method, because it does not require advanced technical and fundamental knowledge.

Minuses of news trading

Among the disadvantages of this method are the following:

  • unpredictability;

  • high level of risk;

  • widening spreads during news releases, which may limit profits.

As lucrative as it may be, trading on the news is not easy. It requires special practice. Keep this in mind when entering into a risky game.