A Guide on How to Do News Trading in the Right Way – Introduction
There are many trading strategies used by traders in the financial market. These strategies are divided into technical and fundamental analysis. In technical, traders use a combination of technical indicators like moving averages and Bollinger Bands to make decisions. In fundamental analysis, they use the news and other economic data to make decisions. The economic indicators regularly used are interest rates, inflation, confidence numbers, and employment numbers. Here are a few things you need to know about trading using the news.
The economic calendar
This is an important tool used by traders because it provides a schedule for the economic events. The calendar is very accurate and is usually customizable according the data and their importance. For example, while the interest rates decision by the Federal Reserve reverberates throughout the market, that of a smaller central bank like Ghana or Kenya has no impact in the overall market. To use the calendar well, it is recommended that you do a few things. First, always check the calendar before the trading day. This will help you know more about the events that you expect.
Second, you should look at the trends in the specific data. For example, if you are expecting employment numbers, you should expand the chart to show the recent trends in the chart.
Third, you should clean the calendar by removing the unnecessary pieces of data. You can do this by removing the countries that you don’t follow and the economic data that does not have major impacts.
The good thing about the calendar is that it tells you about what to expect. However, there are other news that you don’t expect. For example, when there is a major earthquake, there are usually impacts to the markets. It is worse because no one can accurately predict when an earthquake will take place. Therefore, it is very important for you to be among the first people to receive the news. There are a few ways to do this.
First, you should be on Twitter. Twitter is where most traders get their information. Second, you should have access to the latest news by watching financial media. Two of the best sources of news are Bloomberg and CNBC. If you don’t have the channels at home, you can stream them online.
Third, you should look at the local news. For example, if you are an oil trader, you should spend time reading local news from countries like Saudi Arabia, Nigeria, and Venezuela. Before the news makes global headlines, it is first reported by the local news agencies. Funny enough, most sophisticated investors rarely get this news because they depend on large news agencies like Bloomberg and Reuters.
Fourth, you should know how to interpret the data. For example, when there is an earnings release, most uninformed traders tend to trade using the headline numbers. In this, they ignore the important numbers that traders focus on. For example, the revenues and EPS of a social media company might beat the estimates but if the user growth slows, the company will see the stock price falls. The same happens to investment banks where traders look at the trading revenues.