The release of economic data provokes a strong reaction from market participants.
Price collapses or rushes up within a few seconds.
As a rule, the release of important news that directly determines the demand for a particular stock (at least in the short term) may force the price to move rapidly.
Traders can also make money on this if they follow a few simple rules.
There are two main approaches to news trading. Let us consider each of them.
Trading is conducted by setting a kind of price trap at a distance of 1-1.5% from the current price by placing pending Buy stop orders (in case of price upward price movement) and Sell stop (in case of downward price movement) in both directions.
The goal of the trade is to catch a sharp jump caused by the publication of news.
Therefore, if there was no sudden movement within 20-30 seconds after the news release, traders should immediately remove the pending orders.
Stop loss and Take profit orders are set at a distance of 2% from the current price.
Traders do not change them in any case, i.e. an opened position must close either at Stop loss or at Take profit.
If one order triggered, traders should delete another order immediately.
Trade is conducted only on the most significant news, marked as the most important in the calendar.
Traders find out what news is scheduled for today from an economic calendar.
They are only interested in the report that is marked as the most important.
If there are any, then they start trading 5 minutes before the news release.
Trading On The News Release Fact
Trading is conducted by opening a position 10 to 15 minutes after the data release, depending on the information received.
In the most general form, if the news is good – traders should buy stocks if bad – they sell.
The essence of trade lies in the fact that price fluctuations in the first seconds after the news release do not reflect the real influence of this news on the market, but are a spontaneous reaction of the crowd to the data obtained.
Market participants need time to calm down, analyze the data, after which the price will move in the right direction.
Stop loss and Take profit are set by 3% of the price.
Take Profit may change depending on the news. It is also possible to use Trailing Stop.
Trade is carried out following the general trend and only the most significant news is used.
The first thing traders need to do before the news release is to determine the direction of the trend.
On an upward trend, traders should buy only, on a downward one – sell only.
It is important to understand that if Apple stock falls, then traders will open positions only selling the securities if there is bad news for the company.
Depending on the data obtained after 10-15 minutes, traders open a position and set up protective orders.
Take profit and Stop loss levels may differ slightly for each news and stock.
Accurate parameters are determined empirically.