As traders there are certain high impact news events we need to be aware of because they can cause huge swings within the market at a moment’s notice. This is due to the fact that volatility can drastically increase when there is a lack of liquidity in the market, and for that reason we need to treat these news events with respect, otherwise we potentially risk getting slipped and/or blowing prop firm accounts if we violate the max drawdown rules because of slippage.

Economic indicators, financial news events, and geopolitical events can all trigger price volatility, which creates both opportunities and risks for traders. 

Learning how to interpret news events and react to them is essential for becoming a proficient trader. In this article I’m going to cover what news you should be cognizant of, disseminate myths about certain high impact economic news releases, and educate you on how you can trade around news events without exposing yourself to unnecessary risk.

The Impact of News on Price Action

Market news is a great catalyst for price movements, specifically when it involves unexpected developments or significant economic announcements. 

News often causes quick shifts in price with market participants adjusting their positions based on newly developing information. Knowing how news affects markets is important for price action traders looking to protect their accounts.

How Economic News Events Influence Market Movements

Sometimes economic news can cause fluctuations in prices in mere seconds or minutes. Sometimes there is a delay before price action reacts to a news release of 10-20 minutes. Most seasoned day traders react to news by exiting trades before news hits, or in some cases they may actually try to trade the news to capitalize on their explosive movements.

There are various events that can have a profound impact on price movement, with interest rate decisions from central banks being probably the biggest one. Raising or lowering interest rates can cause significant reactions in the market.

Geopolitical events such as trade disputes, wars, and elections can also have a pretty big impact on price action. Safe haven assets such as bonds, the U.S. Dollar, Japanese yen, the Swiss Franc, or Gold are often used to park money when political instability occurs, because it causes the value of these assets to rise as demand for safe haven assets increase.

If you trade futures, the indices, stocks or equities, company specific news such as earnings releases for public companies, product launches, good/bad press, or management changes can heavily influence the price of these trading instruments.

Understanding Market Sentiment

Something that you'll quickly learn in my day trading course is that market sentiment is defined as the overall feeling investors have toward a particular asset or market.

News always plays an essential role in shaping the market’s sentiment by influencing the emotions and perceptions of traders. For instance, news may cause knee-jerk reactions in the market, where traders act based on emotions rather than logic, causing price to whipsaw.

This may lead to sudden price drops or spikes. It's very important to understand market sentiment as this will help you anticipate future price movements. For example, if the market sentiment is bearish, traders can expect prices to decline further.

Trading Around High-Impact Economic News: Volatility or Opportunity?

The higher the impact of the news, the more volatility it will create, and this can create a great opportunity for profit, but that doesn’t necessarily mean you should trade it.

Identifying Key News Events to Monitor

There are several key announcements, economic reports, and news events that a price action trader needs to keep an eye on. 

This includes, but is not limited to, non-farm payroll, FOMC (Federal Open Market Committee meetings), CPI (consumer price index), central bank rate decisions of currency pairs you’re trading, unemployment rate, and even things like PPI (purchasing managers’ index). 

Trading News Reactions vs. Anticipating News

There are two ways of trading around news releases, either by reacting to them or by anticipating them. Trading AFTER news releases is usually considered a safer strategy, because this involves reacting to the resulting price action. This helps curtail the risks of volatile whipsaws in price action, but it doesn’t always guarantee there will be good trade setups.

The other option is placing trades before news releases, which can come with a big potential for profit, but it's also extremely risky. News may not be what you expected to be, and this can be problematic. The risk of slippage is also an issue that you'll have to deal with, which is why I don’t recommend ever placing trades within 15 minutes of a news release.

Practical Tips for Trading News in Price Action

When trading price action-based on the news, there are a few strategies that you need to adopt to become a proficient trader.

Managing Risk During News Events

In order to protect your accounts and effectively manage risk it’s important you avoid trading during high-impact news, so you can avoid erratic and unpredictable markets.

Whether you are trading high-impact news or not, always use stop loss orders, although be cautious when using them, as slippage (orders not filling at your stop loss order levels) can occur. Therefore, one of the best strategies for managing risk is to reduce your position size when conditions are volatile, or avoid trading it altogether.

Timing Entries and Exits Around News Releases

Timing is key when it comes to being a profitable trader in price action. To help mitigate risk, it's always a good idea to wait for good setups after a news release before placing a trade, as false breakouts are common when conditions are volatile.

Understanding how liquidity can tend to pool before a major news event and how it’s likely to be swept can be useful for planning your trading day around a news release. 

Leaving Your Emotions Out of It

There is one major mistake that you need to avoid when trading news, and it’s over trading in reaction to every news event. There is nothing wrong with avoiding trading on a major high impact news day like NFP/Unemployment release days. It’s better to sit out of the often choppy price action leading up to a news event, while also avoiding emotional trading after it releases. It's also best to focus on those events that are most likely to affect the markets that you trade in.

That’s it for today, friends.
-Brian