How to use news to analyze market trends

Benefit of news trading

1.A defined entry and exit strategy. Entering and exiting a trade is based on how the market interprets the news, which is commonly outlined in a trader’s plan.

2.Many trade opportunities. Every day there are several news events and economic releases that can provide trading opportunities.

Almost every day there are major economic data releases that could have a significant impact on your current open positions. A news trading strategy involves trading based on news and market expectations, both before and following news releases. Trading on news announcements can require a skilled mind-set as news can travel very quickly on digital media. Traders will need to assess the news immediately after it’s released and make a quick judgement on how to trade it. Some key considerations include:

  • Is the news already fully factored into the price of an instrument or only partially priced in?
  • Does the news match market expectations?

When trading based on news releases, it’s vital that the trader is aware of how markets operate. Markets need energy to move, and this comes from information flow such as news releases. Therefore, it’s common that news is already factored into the assets price. This results from traders attempting to predict the results of future news announcements and in turn, the market’s response. Moreover, Politics affects a country’s economy, and the consequent is major impact on currency. The most important political events influence economy are elections, revolutions, impeachments and death of political leaders. Some unforeseen events may influence economy too such as terrorist attack, earthquakes, tsunamis and droughts. Unexpected breaking news may affect economy more strongly. Financial and economic news can also have a big impact on the market.