If you’re a trader, whether a beginner or a professional, you know the importance of strategy. At the end of the day, your trading strategy is the what, when, and why, of just about every trade you will make in the market. Throughout the years, I’ve tried various strategies; some successfully, some not so much. One of the strategies that I tried out early on and loved from the beginning is trading with the news. This surefire strategy has made me money time and time again, and rarely led to losses. Today, we’ll talk about the basic principles behind the trading with the news strategy, resources that you’ll want to look into, and how to employ the strategy.
Trading With The News Basics
Before we get into the trading with the news strategy, it’s important that you understand why news is the center of this strategy. At the end of the day, the market moves when investors invest or divest in stocks. So essentially, the reason for any movement we see in the market is the result of investor perceptions.
This is important to keep in mind when it comes to the trading with the news strategy. At the end of the day, investors scour news when creating their own opinions of a stock or stocks. So, while investor movements are the reason for up and down movement in the market, the underlying reason for the movement is the news that led to the investor perception that the Motley Fool stock picks were good buy or sell.
This is where the trading with the news strategy comes in. The strategy is built on a relatively simple principle. That principle is that if you pay close attention to the news that investors care about, you can catch trends early, and capitalize on those trends for a profit.
Important Resources To Consider
At the end of the day, trading with the news ultimately depends on the news. Without the news, you have nothing. Ultimately, there are two different types of news. They include breaking and expected. Breaking news is the type of news that happens out of the blue with no warnings. Expected news is just that. This news comes by way of earnings reports, product releases, and more. Both types of news will generally cause movement. So, you’ll want sources for both. Here they are…
Breaking News Sources
- Modest Money – That’s right, Modest Money occasionally posts breaking market news.
- StockTwits – StockTwits is like the Twitter for the investing community. This network is where many of the world’s best investors and traders share their thoughts. Their heatmap is also a great indication of ongoing trends.
- Twitter – Twitter is also a great place to find breaking news. By following big names in the trading industry like Adam Feuerstein, Quote The Raven, and Open Outcrier, you’ll tap into breaking stories seconds after they break.
Expected News Sources
- Economic Calendars – There are various economic calendars available online for free. My favorite is the calendar offered by Bloomberg. Investing.com also has a great economic calendar. These calendars will list major events that are happening in the market soon.
- Earnings Calendars – For earnings calendars, it’s best to go to the index. For example, NASDAQ offers a calendar with dates of every report from companies listed on the index.
How To Employ The Trading With The News Strategy
Because there are two different types of news to take advantage of, there are two different ways to go about trading with the news. Here are the steps you should take with both…
Trading With Breaking News
- Get Prepared – Start by opening your favorite news sources. Also, open your trading deck and make a plan for trading for the day.
- Scan News – Continuously scan your news sources. Because of the nature of breaking news, you never know when an opportunity will pop up.
- Deep Scan – When you see a story that you believe will move the market, take a couple of minutes to digest the title and read subheadings. You don’t have much time. Taking action too late could lead to minimal gains.
- Define The Trend – By the time you digest the title and scan the subheadings, the trend will have likely found direction. Now, it’s time to define the trend to determine which direction it’s headed in.
- Enter Your Trade – Now that you know what’s causing the trend and where it’s headed, enter into your trade.
- Exit Your Trade – Don’t get greedy here. When the trend reaches the top, it will dip. Sell on the dip and count your profits. While it may climb back up, there’s no guarantee, and waiting too long could even lead to losses.
Trading With Expected News
- Pick Your Events – Using the various economic and earnings calendars available, pick a few events that you believe will move the market.
- Scheduling – Now, it’s time to schedule yourself to be available. You should make sure that you are available 15 minutes prior to each event and for about an hour after each event.
- Prepare – When the time comes, use the 15 minutes in your schedule prior to the event to get prepared. Open the news source, open your trading deck, and clear your mind. Action is coming soon.
- Digest The Info – The the event happens, take a moment to read headlines and digest what’s going on. As with breaking news, you’ve got about 3 or 4 minutes before the trend is defined.
- Enter The Trade – Once the trend is defined, it’s time to enter the trade in the direction that the trend is headed.
- Exit In Time – As with breaking news, getting greedy with expected news can lead to losses. When you see that dip, it’s time to flip!
Trading with the news is probably the easiest strategy to understand that I’ve come across. However, don’t let its simplicity fool you. I’ve made more money on this strategy than any other strategy I’ve ever employed! So, what are you waiting for? It’s time to start trading!