Trend Trading With the News
As a trader I use various different strategies in an attempt to decrease risk and increase profits as I trade. One of my favorite strategies is called trend trading with the news. This strategy is not only simple; it has proven time and time again to be one of the most lucrative in my toolbox. So today, we’ll go over what the strategy is and how it works, and I’ll provide a few examples. So, let’s get right to it…
What Is Trend Trading With the News?
Trend trading with the news is an active trading strategy used by traders to identify and capitalize off of trends in the market. This strategy is perfect for day-traders and binary options traders and uses a little of both fundamental and technical market analysis. The strategy is based on a couple basic beliefs…
News Moves The Market – The traders that use this strategy recognize the fact that the news moves the market. Therefore, when positive news is released about a particular asset, the market tends to react in a positive way. Adversely, when negative news is released, we tend to see a negative reaction.
The Market Moves In Trends – Another fact that the trend trader holds onto is the fact that the market moves in trends. So, with an understanding of past trends, the trader can properly predict what he may be able to expect in the future.
How to Deploy the Strategy
As mentioned above, the trend trading with the news strategy is a relatively easy one to use. In order to deploy the strategy, you’re going to need two very important tools…
Economic Calendar – In order to catch trends in time to earn maximum profits in your trade, you’re going to need an economic calendar. These calendars list upcoming news events that are likely to move the market in one way or another and are available for free on a wide variety of finance websites.
Candlestick Chart – The candlestick chart will be used to track, analyze and capitalize off of the trend. Again, this tool can be found for free from just about any mainstream finance website.
Now that you have the tools, follow the steps below to use the strategy…
Step #1: Find Events Likely to Cause Trends – Start by opening your favorite economic calendar. Now, look through the calendar to find events happening that have to do with assets of interest to you. These events can include earnings reports, product launches, and other announcements that are likely to make waves in the market. Once you’ve found a few events, mark your calendar to make sure that you’ll be available to trade.
Step #2: Get Prepared to Trade – On the day of the event, about a half hour before the event is scheduled to happen, you’ll want to start getting prepared. First, you’ll need to open the candlestick chart for the asset you’ve decided to trade and view the 5 minute and 15 minute frames. Now, do your research on the asset so you are prepared for what is most likely to happen. However, you’re not ready to trade yet. It’s never a good idea to get into a trade before the event happens.
Step #3: Timing Your Trade – Now it’s time to get the trade going. Once the event happens, keep a keen eye on your candlestick chart. Don’t do anything for a period of about 5 minutes. In the first few minutes, you’re likely to see heavy volatility. However, after 5 minutes, a clear trend should make itself apparent.
Step #4: Make Your Trade – Now that the trend is clear, it’s time to make your trade. For example, if you’re trading binary options and an uptrend is clear, it’s time to start purchasing calls. If a downtrend is apparent, it’s time to start purchasing puts.
Step #5: Continue To Earn from the Trend – After major news events, trends can last for quite a while. So, continue to track the trend until it goes stale; earning returns every step of the way. Once the trend goes stale, start looking for your next profitable opportunity for the day.
Trend Trading With the News Example
Currently, we are in the midst of earnings season; which is one of the best times to deploy this strategy. With that said, on Monday, May 4th, Array Biopharma (NASDAQ: ARRY) released their earnings report as expected. By watching my economic calendars and marking this one, I was prepared for the report and to trade the trends. As a result, I purchased a few calls and made a few bucks…Here’s what my day looked like once the news broke…
As you can see, trend trading with the news is a very easy strategy to use; and when done properly, can be incredibly lucrative. So, what are you waiting for? It’s time to start trading!