2020 has been filled with news events, from Covid-19 to the trade war to the elections and numerous others such as FED minutes and insane Jobless claims reports. The questions is how do we trade when the market is so uncertain. The simple and straight forward answer is we simply sit back and wait for the event to pass and then continue on with our trading. The issue with this is that it is extremely hard to do for news that is not scheduled. We have all seen a certain person randomly send out tweets that end up pushing the market up or down for 30, 40 or even 50 points in the matter of a few seconds.
How to Deal with News
As mentioned above when you see these big scheduled news events such as FOMC minutes or interest rate decisions among numerous other events on the list, it is best to simply turn the charts off and wait for the news to pass. Sometimes this takes a few minutes and other times it takes an entire trading session to get the news sorted out and have price return back to its mean. The reason we do not want to trade during a news event is due to the fact price is reacting to what is being said and not what the price action is doing. Many times during these news events we can see huge bars where price has moved 30-40 points in the matter of a few seconds, only to have price reverse its course and go the opposite direction. The volatility during some of these events can be extremely high due to the point that if you even get the chance to enter into a trade you will be met with extreme amounts of slippage.
Now if you are currently in a trade an non scheduled news comes out there are a few things you can do. First you need to have a decent news source on hand, there are tons of great free options available now a days. Second you need to preserve capital, for example you might be in a short trade and the news that came out propels price in the opposite direction, do not increase your stoploss. This news event could have a lasting impact on the current market and even though price has been trending down for days or even weeks, you could see a large intra-day trend emerge.
If you are in a trade that ends up working out on your behalf do not simply enter back into that trade, consider yourself lucky to have walked away with a gain and not a loss. This should go without saying, also use a stoploss! When these random news events happen, if you don't have a stoploss you are committing account suicide. The stoploss was created for times like these and this is why you should always use a stoploss as you cannot predict the future/ what someone could come out and say.
Trading around the news can be difficult to do, due to the fact you will see numerous large bars and the Fear Of Missing Out (FOMO) can set it. That is why it is best to simply not trade during the news. If you cannot sit back and not place trades then it is suggested to immediately turn off your charts and take a break.
Trading is all about capital preservation and trading around the news is no excuse to throw this rule out the window!
Comment down below on what you do during important news events.