How Trade News So You Don't Get Your Butt Burnt..

We all know prolific Global news events can shock markets, and fast.

Lots of Traders have been there. Quietly and cautiously monitoring their Portfolios before suddenly, the sentiment of the Market they are trading changes and adjusts quickly to their surprise. This can be both random, or indeed expected, but in the end there is always one winner and one loser. Being on the right end of the stick is always the best way to be and isn't always the case for a lot of traders, especially when they think they have the secret to understanding the minds of millions trading with and against them.

So, lets roll back to that nightmare you had last time you were trading your broker account. When you went short before US CPI Data finally came out and ended the sideways market. To your horror, the price of your contracts went the opposite way to your desired direction, flying up into space.

'But how?', 'But Why?' you ask yourself in despair before you are finally closed out for a loss automatically. This is just one of the many examples of how its a terrible, terrible idea to try to guess the outcome of news events before they occur. 

Here's why; You, me or anyone else in this world (except those in high offices, in the city) know exactly what the market will do or exactly how it will react to news in the IMMEDIATE term. The reason why emphasis is placed on the word 'immediate' is because its far easier to gauge what is likely after, rather than before something happens. Think about it. If you were going out to a friends Garden Party, it's much easier to predict whether you will need to bring a sweater if you have read the forecast that has already come out. And it's much more relaxing to chow down on a juicy rib when you are warm, right? Trading the 'RE-Action', rather than the 'action' similarly is a far more comfortable process.

That's because sometimes its a good idea to just get in reality and realise, you do not need to, or can, know exactly what effect the news will have on any market at any given time as soon as it is published. Trying to guess this is just like trying to guess whether your dog has eaten its dinner already, even though it approaches you looking hungry after your partner has fed it. Because prices can fall on good news and rise on bad news, and do both in the same space of one or two minutes, there's no point trying to pre-predict it. Remember, often Market moves are fuelled by the 'after-speech' or comments from central bank committee members discussing their new approach based on the newly released results. That can entirely erase a move after it has happened.

So, in this case, what should your new approach be? How should you go from 'gambler' to wise and experienced trader? 

Well, it's rather easy. Stop getting in before the news because YOU are now a world class economist and know the exact immediate effects of trillions of dollars of movement in the financial system. The saying 'the second mouse gets the cheese' is perfectly apt in this situation, because you can let everyone else who tries to guess the news get slaughtered while you waltz in and pick up the profit on a reversal/attainment of a great price action level to trade where you've seen previous buying or selling. As much as we would like to think it, we are not all economists and we do not all know perfectly, 100% of the time what is going to happen. But the beauty of trading is simply that we do not need to.

That's right. You don't need to know exactly what's going to happen all the time to make money. All you need to do is know what is repeatable. What works not 'every time', but what works 'over time'. Instead of trying to be perfect, be consistent. After all, being consistent is the only way that you can accurately gauge results without them be skewed. Being perfect would not show any loss, or any mistakes. It simply just does not exist.

So before the next big news event, don't give in and trade before hand, it can hurt,

Will Sebastian

Founder Of WOTT Trading Academy