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Do you trade the news?

When important financial news is released, usually the prices of financial commodities (stocks, bonds, currencies, etc.) start fluctuating more than they normally do.

This increase in volatility makes it more difficult to day trade – since prices move more chaotically and stops are taken out more easily. For that reason, it is usually better to avoid taking a position right before or during an important news or economic release. What you should try to avoid is the urge to buy or sell based on your interpretation of the news. Just because you think a specific news or event is positive for the price of a stock or currency, it doesn’t mean that the price will go up. If the news is significant, the price will go up or down – it doesn’t matter which way it goes. You can then react to whatever direction it decides to head in a certain period of time after the release. This is statistically a safer bet.

I reiterate: don’t trade based on news. Be aware of when the news or economic report will be released and then be EXTRA careful during that time. Don’t take a position into an announcement hoping that it will move the price in the direction you want. That is gambling, not day trading.

Over the years, I’ve actually met a few successful news traders, especially a really great gentleman from London – but the reality is that successful traders are few. News trading should only be contemplated by extremely experienced traders under rare circumstances. Most traders should look for different ways to trade.

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