On an invented price path, the price is quiet until a scheduled release, jumps up, reverses below where it started within moments and then drifts higher, with a purchase on the jump and a sale on the reversal that are both closed at a loss: 3 trades are marked, one closed ahead and 2 closed behind.
A triangle marks where a trade opens and points the way it was taken. A green dot is a trade closed ahead, a red dot one closed behind. The path was invented to show how the approach behaves, including where it goes wrong. It is not market data and it proves nothing.
Also searched astrading the news · economic calendar trading · non-farm payrolls trading · straddle the news
A description, not a recommendation
This is a description of an approach people use. It is not a recommendation. No approach works in every market, nothing here has been shown to be profitable, and the chart is invented.
The idea
News trading is trading around a scheduled announcement: an inflation figure, an employment report, a central bank’s rate decision. Prices often move quickly when the figure differs from what was expected, and the approach tries to be in that move. What matters is the surprise, the gap between the number and the forecast, not whether the number is good or bad in itself.
Usually heldMinutes to hours · others held about as long
The rule, as people usually state it
Two versions are common. The first waits for the release and trades in the direction of the first sharp move, with a stop beyond the bar that made it. The second places two pending orders before the release, one above the price and one below, so that whichever way the price jumps an order is filled; the other is then cancelled. A third, slower version waits for the first reaction to settle and trades only if the price holds its new level.
What it needs from a market
- A release that is scheduled, widely watched and able to surprise.
- A real difference between the figure and the forecast. A number in line with expectations often moves nothing.
- A market that stays liquid enough through the release for orders to fill near the price asked.
What it costs
Few trades, but each is made at the most expensive moment there is. In the seconds around a major release many firms’ spreads widen to several times their usual size, and an order may fill some distance from the price requested: that difference is slippage, and it can be larger than the planned stop. The cost of a news trade is therefore not known in advance. It is whatever the market offered at that instant.
When it fails
- When the first move reverses. A jump one way followed at once by a larger move the other way is common, and it stops out the first trade.
- When both pending orders are filled in turn, each at a loss.
- When a stop fills far beyond its level because the price did not trade in between.
- When the release is revised, or the accompanying statement matters more than the headline figure.
The mistakes people make with it
- Treating a stop as a guaranteed price. Through a release it is an instruction to close at the next price available.
- Judging the figure and not the surprise.
- Using a larger size because the move is expected to be large.
- Forgetting open positions held for other reasons, which pass through the same release.
In the rule bench
The rule bench cannot express news trading. It has no calendar and no releases, and its spread is fixed: the widening and the slippage that define a news trade are not modelled.
Questions people ask
- Is news trading profitable?
- Nothing on this page shows that it is. The page describes what people do and why. Published research on trading rules is mixed, results that looked good in one period have often faded in the next, and costs remove much of what remains. The loss figures that regulators require firms to publish show that most retail accounts trading CFDs lose money.
- Why do spreads widen around news?
- Those who quote prices do not know where the price will be a second later, so they quote a wider gap between buying and selling prices, or quote less size, until the uncertainty passes.
- Can a stop-loss fail during a news release?
- It does not fail, but it does not promise a price. A stop becomes an order to close at the best price available once its level is reached. If the price jumps past the level, the order fills at the next price there is, which can be much worse.
The words on this page
An explanation for study. It is not advice, a recommendation or a forecast. This is a description of an approach people use. It is not a recommendation. No approach works in every market, nothing here has been shown to be profitable, and the chart is invented.