Trading the news

How does everyone here deal with news items?

A trade of mine (short) got stopped out this week because the news item was really bad, but the market didn't seem to care as it held it's ground. I can't see trading without taking news into consideration, but sometimes it just doesn't seem to matter. In retrospect, I should have just paid attention to technical levels as if I had performed the trade today, I would have been in the money since the stock hit a major level pre-market and took a big ol' dump all day long.

I was thinking of making a rule to discount all news events, but then I'm supposed to discount earnings warnings/upgrades/etc? I'm just trying to figure out the best way to deal with news items. Typically bad news is discounted in a bull market and good news is discounted in a bear market. Maybe because it's been choppy trading for a month, the market just didn't really care that it was bad?

i have learnt that half of the news items are irrelevant.

jacknapier said:

How does everyone here deal with news items?

A trade of mine (short) got stopped out this week because the news item was really bad, but the market didn't seem to care as it held it's ground. I can't see trading without taking news into consideration, but sometimes it just doesn't seem to matter. In retrospect, I should have just paid attention to technical levels as if I had performed the trade today, I would have been in the money since the stock hit a major level pre-market and took a big ol' dump all day long.

I was thinking of making a rule to discount all news events, but then I'm supposed to discount earnings warnings/upgrades/etc? I'm just trying to figure out the best way to deal with news items. Typically bad news is discounted in a bull market and good news is discounted in a bear market. Maybe because it's been choppy trading for a month, the market just didn't really care that it was bad?

Click to expand...

I Think it depends what t/f's you are trading. For eg I trade the shorter t/f's so have smaller stops and thereforedon't hold a position through an event risk such as a news/data release unless the forecasts are favourable re most likely market reaction and crucially that my stop is at b/e or better ahead of the event risk.

Some such news/data releases are historically more likley to see a reaction/volatility than others, the most obvious example being U.s NFP. This doesn't mean to say that ach can't see a reaction depending on it's deviation from the forecast/previous and any revisions to previous, but this said the statement above generally holds true.

Sometimes I will trade the market reaction to the event risk byut this depends on whether a repeating hi-prob set-ups arises. On the times that a big reaction is caused a good tactic can be to but the 1st lo/sell the 1st hi - then sell the pullback/buy the pullback respectively but again this depends on what sets-up.

G/L

i ignore the news
but pay attention to obvious landmarks such as Options Expiry Day, Last Day of the Quarter/Half
(ie yesterdays crazy up-surge to finish the Q/H off on a positive vibe)

It's very difficult to predict the right side of news. The same economic release in two different months will have very different effects - sometimes the importance of the figures is ramped up by the cumulative effect of less important news items that recently occurred: sometimes the market will react very well to poor news if the news is better than it had expected.

You can go mad trying to learn enough aout newsflow and its effects on the market. More importantly, you can go broke while still a 'student'. During the learning period (years, not months) make sure -
you always have stops in place
your stops if hit will not collectively bust your account
if necessary, you are out of the market before significant news / events like NFP and options expiry
you're not tempted to bet on the market's reaction to tomorrow's news.

For retail traders taking a position right before major new events is a fools game. Wait for the news to come out, get digested by the market players, and then trade it.

Peter

i've had some very good success with Option Straddles just before FDA decisions on various new drugs etc.
Successful approval can send an otherwise neglected share into orbit.
Equally, FDA denial can be the final nail in the coffin

I am told that half the news events dont impact the market as expected...I just cant figure out which half ?

NVP said:

I am told that half the news events dont impact the market as expected...I just cant figure out which half ?

Click to expand...

You need to do more homework then.

rathcoole_exile said:

i've had some very good success with Option Straddles just before FDA decisions on various new drugs etc.
Successful approval can send an otherwise neglected share into orbit.
Equally, FDA denial can be the final nail in the coffin

Click to expand...

The one thing I leared about options is that I don't know how to trade them properly
Straddles/butterflys/condors always seemed too costly to me especially when there is expected news out. For me there were easier ways to a make money so I gave up on options.

Peter