Pros and cons of news trading
Best day trading practices Nov 11, 2019
News trading is a huge umbrella that encapsulates several trading strategies. It is the core ideology of many trading strategies used in day trading today.
What is news trading?
News trading is riding on news that causes waves on the financial market. News can drive price movements up or down and this sets up a trend.
On the other hand, a trend can be generated by several factors of which the most fundamental is news.
Is news trading popular among day traders?
News trading is one of the most common techniques used by day traders.
Everyone is in one way or the other affected by what is happening around us, especially the financial market. It informs the day trader or investor and leads him in a certain trade direction which causes a certain trend of price movements.
Every day trader uses the news to trade in one way or the other. It is mainly because news generates trends in price movement as we stated earlier.
It is, however, a bumpy road to base your trading solely on this trading technique because it doesn’t thrive on solid technical analysis.
Let’s take a look at the scenarios of when to use this technique and when not.
Is trading new and trends a good choice?
News trading is not a stable technique. It fits best into situations where there is major news hitting the market. To paint a better picture of how this technique works, let us see some of the pros and cons of it.
Quite simple to use
Unless you want to use news trading with other indicators, it is one of the easiest forms of trading techniques. Most beginners in day trading prefer this technique because it doesn’t demand much technical knowledge in a broader sense.
You just need to be well informed with news or reports from authenticated or trusted sources.
Most day traders use this technique to make quick profits from the market. Traders try to get the best out of it before the tides subside.
For example, ROKU was a major buzzer in WSDT I. The report on the company’s earnings caused an upsurge in price movement and trends.
So, competitors milked a lot of good profits from it during the WSDT.
News trading can be used in various spheres and areas of trading. It is not specifically limited to day trading.
News affects everything in the financial market, because of this, news trading can be used in different types of trading, stocks, and commodities.
The versatility makes it a top choice for many traders who trade on different markets.
News trading is a high-risk type of trading. This high risk emanates from the fact that trading on elements can take a twist anytime. Sometimes predictions can be wrong and things might go south. It is certainly not for the faint-hearted.
Unstable or unpredictable market
As we explained in our first point, the market can take a swing at any time, and prices may move in the opposite direction. The instability of this type of trading is what makes it high risk.
Your chances of earning better profit will dwindle in certain financial seasons (nonfarm payroll, earning season, etc.) when certain reports ‘shake’ the financial market.
Most traders see this technique as the kind that you pick out of your pocket when the season is right.
News trading is a good fit for short, quick earning type of trading but it comes with great risk.
Another important fact to consider is that it is seasonal, so it is not very profitable to use it when there is no major buzz in the financial market. It thrives on an authentic voice’s prediction or anticipation of a major event.
Traders usually combine it with different trading strategies in major competitions like the WSDT to be on a safer side.
If you are a beginner, it would be an attractive side for you, since it requires minimum technical knowledge and skills to use it. But it’s also advisable to calculate the risks and buttress it with trusted indicators.
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