News Trader
An investor or trader who makes investment decisions by following notable news announcements
What is a News Trader?
A news trader can be seen as an investor or trader who makes investment decisions by following notable news announcements. News traders use market sentiment to their advantage.
By keeping track of what is happening in the market and anticipating certain news releases, a news trader uses the market sentiment to try and make profitable trades.
Although the market hype built up by news releases and economic reports may not be long-lasting, news traders can take advantage of price actions of financial instruments, currencies (stocks and bonds), and securities.
News traders can also be considered day traders since they classically enter and close a trade on the same day.
Summary
- A news trader can be seen as an investor or trader who makes investment decisions by following news announcements.
- A news trader can be seen as a type of day trader since they classically enter and close a trade on the same day.
- They often focus on trading during times when the market is still heavily reactant to news developments. The time can be either immediately after the announcement of the news or the moments leading up to the announcement.
Understanding News Traders
A news trader often focuses on trading during times when the market is still heavily reactant to news developments. It can either be immediately after the announcement of the news or the moment leading up to the announcement.
Because of considerable amounts of volatility in the market at such times, opportunities to profit present themselves, and news traders position themselves strategically.
Although news can be unpredictable and often comes as a surprise (for example, natural disasters), news traders can still position themselves to make profitable trades by making an informed assumption on the direction the market is likely to follow and the impact the news may have on price trends at the time of the announcement.
Hence, timing is an important factor for news traders.
News trading is more about attempting to foresee the impact of a news announcement. Large agencies, such as the Federal Reserve, have tried to mitigate market reactions to their announcements by releasing or signaling new policies in advance. However, even these policy signals have become tradable occurrences.
Types of News that News Traders Focus On
News can be classified as unexpected or recurring.
1. Unexpected news
An announcement of a sudden or unforeseen occurrence, such as a natural disaster, an economic or financial development, or a terrorist attack.
2. Recurring news
An announcement that occurs at the same time after a steady period of intervals; for example, a quarterly report, economic statistics release, or the interest rate announcements by the Federal Reserve.
Examples of the Types of News that can be “Traded”
The following is a list of news examples that a news trader can monitor and trade on:
- Unexpected news
- Federal Reserve rate announcement
- U.S. employment situation summary (also popularly referred to as the “jobs report”)
- Earnings reports (applicable to investment portfolios or stocks)
Below is an example of the potential impact of news on a currency.
Strategies of News Traders
1. Market familiarization
News traders educate themselves on their respective trading markets to make educated investment or trading position decisions.
They study their respective markets by looking at historical data and price trends and identifying the relationship between certain news announcements and how they tend to affect prices in the market.
The market familiarization enables the news trader to take informed actions based on the increase or decrease in a security’s price, following an announcement.
2. Fading
Fading can be defined as the action of trading in the opposite direction of a predominant trend as market enthusiasm begins to fade. The strategy is popular among news traders.
An example can be the news of positive earnings for a stock before the market opens. The anticipation of taking a favorable position based on the announcement will result in the stock opening at a sharp high. A news trader will wait for the stock to peak amid the enthusiasm and then sell the stock as the optimism begins to fade.
It is not to say that the stock is no longer trading at a high, but rather to highlight that the news trader would’ve benefited from the highs and lows of the trading day.
3. Alerts and timing
Because news traders are reliant on news announcements, it is beneficial for them to keep up-to-date with the latest developments in their trading markets. It can be done by setting up alerts for the latest announcements and taking advantage of the right timing to enter or close a trade, depending on their set trading strategy.
Related Readings
CFI is the official provider of the Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.
To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:
