Last week I took part in a Currensee panel discussion titled Scalper, Swinger, or Holder. The main discussion, as the name implies, was about trading timeframes. Fellow panelists Mike Baghdady,Shaun Downey and I took several questions at the end. Here’s one we couldn’t get to during the allotted time, but I think is definitely worth a blog post here.
Would you prefer to enter into a trade “before” or “after” a NEWS event. Would it depend on how big of an impact that the news has on the market?
If you are a short-term trader, putting a trade on right before a significant news item is essentially the same as gambling. You’re putting your account at risk on what’s basically a coin toss. Traders are not in the business of taking blind risks. They look to repeatedly apply an edge to make money in the long run. For that reason, I’m in favor of waiting until the dust settles after the event.
As to whether it depends on the impact of the event or news item on the market, I would suggest being very careful here. We can certainly point out the major calendar items which will have the market focused on them (payrolls, central bank rate statements, etc.). There are a whole lot of others at the second level, though, that during any given period of time can either be very important or totally ignored. You need to be very well plugged into the market to know which are likely to create volatility on a given day and which probably won’t. And of course even a high profile release or news item might prove a complete dud. You just never know.
Now, if you are a longer-term trader then trading before a data release or news event probably isn’t going to matter much. It’s just a question of how much a potential adverse market move in reaction would impact your position. Of course, if you are a fundamentally driven trader, and the news event in question could alter your view, then you may want to wait to see the result.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
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