Profitable traders know that the news can be their best friend or their worst enemy. Professional traders are at an advantage, having access to the best news feeds and information. The market usually prices in a newsworthy event early in the trading day, and indeed, it is usually the professional trader with an informed buying spree that sends prices rallying.
Reacting to Bad News as a Day Trader
Bad news can happen in any market, whether in an uptrend or downtrend or the markets are simply staying still. Live audio and video streams broadcast news before it hits the market, where traders then decipher the news in near split seconds to issue a buy or sell short order. Day trading frameworks are built with news and technical indicators in mind, and when news breaks, day traders are quick to react.
Incorporating the News into Your Strategy
Trading discipline is the most important part to trading the news. Professional traders go with the trend, rather than take a contrarian position. Markets are moved by the majority of traders and money, and being against the trend is an unprofitable position. Profitable traders know that their proven strategies always work out in the long run, even if they incur a short term loss. Picking and choosing when to enter a position based on gut feeling means that you might make more, but you could also lose more. Risk assessment is the key to successful day trading.
Profiting from Financially Bad News
Bad news can be profitable as well. When a company puts out a bad earnings statement, it is likely that all the companies in that specific sector will fall with it. Short positions, even against a long term uptrend, can be very profitable to a day trader looking for just a small percentage movement in price.
Quickness is the Key to Profiting from Bad News
The profitable traders from any news event will be the traders that get in and out of a position first. To make money in a volatile market, you must buy in before the masses and sell your position back to the buying frenzy. Rapid gaps up in an uptrend and gaps down in a downtrend can be extremely profitable.
Bad news is always more important than good news. Profitable traders should always dedicate more time and investment in bad news than good; in most cases, a position will not gain significant value with a good news release, but drop suddenly after bad news. Proven strategies work in any market if the trader lets them. Trying to beat your own system will only hurt in the long run ? and when the bad news rings, be sure to let your portfolio listen.
