Trading News Events Without Losing Your Shirt

So how do veteran traders consistently make money when trading news events? They don’t.

A study was done by a good acquaintance of mine (a well-known FX market analyst who appears regularly on CNBC) to determine how often the market actually moves in the direction expected based on whether or not the news (financial data) turned out to be good or bad for the market. Interestingly, but not surprising, the market only moves as expected 50% of the time relative to the actual resulting news release. That means, that no matter how hard you try to analyze which way financial data releases (like the big NFP – Non-farm Payrolls) will push the market you will only have a coin-flip chance of being right. Are you willing to bet your hard-earned money on a coin-flip during some of the most dangerous moments in the market? I’d hope not.

Even though traders like myself don’t necessarily trade the news event, we will trade before a news event and hold positions through the event or be flat and not trade until several minutes after the event. So our job is not to handicap the news and try to guess which way the market is going to go in trying to make a big home-run play. Our job is to make money consistently with reasonable amounts of risk. Remember, those same big moves in the market can also work against you…fast moving market conditions can destroy hard-earned gains.

The worst thing you can do is jumping into and out of trades just moments in and around a news release. Because if the market doesn’t get you (ie. gapping action) then trade execution challenges normally will (ie. slippage, trade rejects, etc.).

Personally, I analyze the charts and trade the same exact way regardless if there’s news or not. Meaning, if hours before a news event the market tells me to get into a trade then I’ll happily do it. I’ll hold a position for as long as the market tells me to even if it means holding on through a news event. And of course, I’m always aware of where I’m going to get out if the market stops moving in my favor.

The point is, veteran traders consistently make money (and survive) because they don’t throw themselves out in front of the speeding bus (news event).

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