What Are Some Advanced Techniques for Handling Market News and Event-Driven Trading During the Day?

Stocks, commodity futures, and currencies are all subject to ups and downs due to supply and demand fluctuations. When a company reports its earnings, that is important news for the market. However, when news that affects the likelihood to good or bad earnings breaks, that is often more important news. How a day trader handles market news can spell the difference between lackluster trading sessions and impressive profits. Here are some thoughts regarding advanced techniques for handling market news and event-driven trading during the day.

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Analyzing and Anticipating the Impact of News Events on Markets

When interest in a stock picks up it commonly increases trading volume. More buyers will drive the stock price up. More sellers will drive the stock price down. The market can be extremely sensitive to the news such as when the Federal Reserve announces changes in interest rates or the Department of Agriculture issues crop forecasts. Rather than waiting for an announcement, day traders commonly place trades based on their expectations of how the market will act in the runup to a news release. Thoughtfully analyzing a given situation and correctly anticipating market reaction is generally more profitable than waiting for a news release and then responding.

Understanding How to Read Economic Indicators to Identify Buying Opportunities

Whether one is day trading individual stocks or ETFs that track market indices like the S&P 500, the economy is a major factor in driving prices. Understanding how to read economic indicators is essential to identifying buying opportunities. Important economic indicators include the gross domestic product (GDP), consumer price index (CPI), and the projected rate of unemployment. A rising GDP means the economy is strong. A rising CPI indicates that inflation is on the rise. Rising unemployment gives rise to worries about a recession. In each case a day trader should look first at where the indicator says the economy is going. Then they should consider how the Federal Reserve or Congress will react in terms of countermeasures. They are commonly good buying opportunities with both aspects of these indicators.

Developing a News Trading Strategy That Suits Your Risk Profile and Financial Goals

A good place to start is by considering your investing and trading goals. You may not have the time or the interest to closely track the news and trade the market minute by minutes. You will consider long term trends and invest accordingly. But for an active day trader, there is always profit potential running up to every news release. A common news trading strategy is to buy the rumor and sell the news. The market commonly overreacts to potential good (or bad) news. Stock, commodity, or currency prices very often go up or down more than what the market will support when the news actually breaks. Thus a day trader places a trade during the runup to a news release and sells as the news breaks. Alternatively they can place a limit order that will preserve their upside opportunity but also protect them when the market falls to a more rational price.

Utilizing Various Tools Such as Charting Software, Trends Indicators, and Sentiment Analysis

Putting a strategy such as buying the rumor and selling the news into effect works better when a trader pays attention to the details. By using charting software and paying close attention to trends the trader can be sure that the market is, in fact, going up or down in response to potential news.?Indicators?of market sentiment that help a day trader see if the market is reacting in the way they expect include the CBOE VIX index, a simple put to call ratio, the high-low index or the bullish percent index. The point is that if you are assuming that the market is going to react in expected fashion you should use some basic indicators to confirm you opinion before risking your trading capital.

Learning Different Types of Order Execution Techniques

Day traders know how quickly the market can change its mind and change direction. When using a strategy such as buying the rumor and selling the news a day trader will always want to protect their gains while keeping alive the potential for further profit. The point is that the trader believes the market is driving the price of a stock, futures, contract, or currency pair too high and that the price will fall due to profit taking when the news breaks. But if the news is far better than anyone expected, the price will continue to climb. Thus a smart day trader will want to stay in their trade for greater profit instead of immediately selling as the news hits. In this particular situation a trader will commonly place a stop loss order at a price a bit below the market going into the news release. When the price keeps going up their position is maintained and if the price falls they are getting out and preserving most of their profit. The same trader will commonly keep raising the stop loss level for that trade as the stock price goes up.

Creating Rules for When to Enter or Exit Positions in Response to News

As we teach at DayTradeSafe, discipline and?rules for entering, managing, and exiting trades?are essential. You may have great insights as to how the market will respond to potential and actual news regarding futures, stock, or currencies. But you need to confirm your opinion using market indicators. Then you need to set up rules for entering and exiting your trade positions. Over time the greatest enemies of day traders are fear and greed. Traders run away at times when the market provides the greatest opportunities. Traders stay in the market in search of profits when they should run away. The best allies for fighting against greed and fear are strict trading rules and the discipline to faithfully apply them to each and every trade.

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