How to trade economic news

Many traders think that watching the news is very important and on the surface that would seem to make perfect sense but…

The problem lies in the fact that there are can be hundreds of new economic and political news stories coming out around the clock. With that many, it is easy to get information overload and become so paranoid that it is impossible to take a trade.

Even if you spent every waking second reading the business newswires, you still wouldn't know everything. In addition you can never be certain how the news will effect the market. To compound the problem further, you can be certain that there will always be market insiders that get the news before you. The bottomline is that no matter how well informed you are, you can never know everything.

Until a trader learns to accept this, they will have a constant sense of uncertainity about whether they are making the right decision or not.

Since I am a technical trader I don't worry about news as I view it as a force that helps create the necessary volatility in the markets. Without volatility there is little movement and follow through.

Another reason you can't worry about news too much is because we can't always control when it comes out. For example say you are in a trade and war breaks out or another 9/11 type event occurs. Those type of events thankfully are very, very rare, but the bottom-line is we have no control or advanced warning over unforeseen events. The only thing we can control is to place protective stops to minimize our losses. (Note: Stops may not protect you if catastrophic news hits the market)

Also don't forget that really good unforeseen news can cause losses for you if you are trading in the wrong direction.

What I mean is… Say you are going short in a stock because the company is not doing well based on its performance over the past year. Even though your analysis is right, there is always a possibility that really good unexpected news within the company could cause a rapid reversal of the down trend and cause you to have significant losses.

One last thing to remember is that there will be times you are in a trade and news hits the markets that may quickly add another few hundred pips to your profit level. Many traders only think of unexpected news as a source of losses.

With all this said, it doesn't mean I throw all caution to the wind regarding news either. Anytime there is a major news event coming out I will either exit the trade I am in or wait to initiate a new trade.