Trading Around News Events

News events change market behavior. Price action that made sense five minutes before an announcement becomes irrelevant five minutes after.

Your technical setups work in normal market conditions. News events create abnormal conditions where technical patterns break and volatility spikes beyond what your stops expect.

What News Does to Markets

Major news events trigger sudden volatility increases, gap moves, and temporary breakdowns in normal price relationships.

Volatility expansion: Average true range can triple in seconds. A stock that normally moves 50 cents suddenly swings $5. Your stops, sized for normal movement, get hit easily.

Gaps: Price jumps from one level to another without trading the levels in between. Your stop at 100 doesn't help if price gaps from 102 to 97. You get filled wherever liquidity exists, often far worse than your stop price.

Liquidity withdrawal: Market makers widen spreads or pull quotes entirely around major news. You might not be able to exit even if you want to. Slippage increases dramatically.

Breakdown of correlations: Normally related markets move independently. Technical levels that usually hold break without warning. Patterns that normally play out fail.

Types of News Impact

Not all news affects markets equally. Understanding impact helps you decide how to respond.

High impact: Fed decisions, employment reports, earnings for major companies, geopolitical events affecting entire markets. These create big moves and high unpredictability.

Medium impact: Sector-specific news, mid-size earnings reports, economic data that's important but expected. These create movement in specific areas while leaving others mostly unaffected.

Low impact: Minor economic releases, earnings from small companies, news that was already priced in. Markets might tick around but normal behavior quickly resumes.

The surprise factor: Expected news has less impact than surprises. If everyone knows Fed is likely to raise rates, the market adjusts beforehand. If the decision surprises, the reaction is larger.

Trading Before News

Holding positions into news events exposes you to risk your normal trading doesn't account for.

The gap risk: Your stop might not protect you. Price can gap through your stop, creating losses far larger than you planned to risk.

The whipsaw risk: Price might spike in your favor, then reverse violently. You don't get filled on your profit target before the reversal. You watch a winning trade become a losing trade in seconds.

The freeze risk: You want to exit but can't get filled at any reasonable price. Spreads widen from a few cents to several dollars. Market orders get terrible fills.

The decision: If you hold through news, accept these risks and size accordingly. If these risks exceed your comfort level, exit before the announcement.

Trading During News

Some traders try to capitalize on news volatility. This requires accepting different risk parameters than normal trading.

Wider stops needed: Normal stop distances don't account for news-driven volatility. Either widen stops to match the increased movement or accept getting stopped out on noise.

Smaller position size: If you're trading the same size during news as during normal conditions, you're taking multiples of your usual risk. Size down to keep actual dollar risk consistent despite increased volatility.

Faster execution: Setups appear and disappear in seconds instead of minutes. You need to act immediately and accept lower precision entries. Hesitation means missed opportunities.

Different setups: Normal patterns often don't apply. You're trading momentum and order flow imbalances more than technical levels.

Trading After News

The period after news offers both opportunities and traps.

The initial chaos: First 5-15 minutes after major news is usually chaotic. Price whipsaws as algorithms and quick traders react. Patterns don't hold. Wait for dust to settle.

The trend: After initial chaos, if the news created a significant development, a trend often emerges. This is when technical trading starts working again. Support and resistance levels reassert themselves.

The reversion: Sometimes initial moves prove overdone. Price spikes on news, then reverts back toward pre-news levels as traders realize the news wasn't as significant as the initial reaction suggested.

Identifying which: Watch order flow and volume. If the post-news trend continues on strong volume, it's likely legitimate. If volume dries up quickly, initial move was probably an overreaction.

Calendar Management

Knowing when news happens prevents accidentally trading into events.

Economic calendars: Show scheduled releases for major economic data. FOMC decisions, employment reports, GDP, inflation data, etc. These times are known in advance.

Earnings calendars: Companies announce earnings dates ahead of time. If you trade stocks, know which symbols report and when.

The surprise events: Geopolitical developments, natural disasters, surprise policy announcements. You can't predict these, but you can notice unusual price action that suggests something significant happened.

Pre-market routine: Check the day's scheduled news events. Mark times when major releases occur. Decide whether to trade through them, exit beforehand, or stay out until after.

Strategy Adjustments

Your normal strategy needs modifications around news.

Tighter time stops: If news is in 30 minutes and your trade hasn't worked yet, consider exiting. The position isn't developing as expected and news might create unpredictable movement.

Lower profit targets: Take profits more aggressively near news times. A partial winner beats getting whipsawed out at breakeven when news hits.

Later entries: If your setup appears 10 minutes before a major announcement, waiting until after the news might be smarter than entering into the unknown.

Size reductions: Trading half your normal size around news periods maintains your presence in markets while reducing exposure to volatility spikes.

When to Avoid News Entirely

Some news events create such unpredictable conditions that trading them offers poor risk-reward even if you adjust your approach.

Initial jobless claims: Often creates short sharp moves followed by quick reversals. High slippage, low probability of capturing moves cleanly.

Fed announcements: Everyone watching means highly efficient pricing. By the time you recognize the direction, most of the move already happened.

Flash crash conditions: When something causes market-wide disruption, preservation matters more than opportunity. Step aside.

Your own uncertainty: If you're not confident in how to handle the news event, staying out is valid. Missing opportunity costs less than taking losses in conditions you don't understand.

The Neutral Approach

Many traders simply avoid trading around major news. Not because they can't make money, but because the risk-reward doesn't fit their edge.

Their logic: Your edge exists in normal market conditions. News creates abnormal conditions. Why trade when your edge is least applicable?

The opportunity cost: You might miss some profitable moves. But you also avoid significant losses and stressful situations. For many traders, this trade-off makes sense.

The consistency benefit: Trading only normal conditions creates consistent execution and clearer feedback about whether your strategy works. Results aren't contaminated by unpredictable news-driven outliers.

News events are part of markets. How you handle them is part of your strategy. Avoiding them is valid. Trading them is valid. The only invalid approach is trading through them accidentally because you didn't check the calendar.