Tools and Strategies for News Traders

Events reported in the news, scheduled economic reports, and even election results can have upward or downward effects on stocks. News traders are those investors or traders who focus exclusively on this phenomenon in order to profit from anticipation of events or the market’s response after news breaks. At the moment the nation is going to vote for all members of the House of Representatives, a third of US Senators, and state and local offices across the country. Profits can be gained by correctly anticipating and trading the news and how the market reacts. There are specific tools and strategies for news traders.

Buy the Rumor and Sell the News

This is an old saying common in the stock market. Market sentiment sends prices up (or down) in anticipation of an announcement or event or in immediate response to an unexpected event. The prices fall after the fact as traders take profits. Likewise prices may fall dramatically and then recover as the market realizes that prices have moved past what fundamentals will support. News traders hold positions for brief periods of time, making trades in anticipation and immediately reversing course as the news hits. A news trader knows that excitement around breaking news increases volatility and the opportunity for profit.

Federal Reserve Interest Rate Announcements

In the current time frame the market is focused on high inflation and the actions of the Federal Reserve in cutting their balance sheet and raising interest rates to slow the economy. Every time that the Fed Chairperson speaks the market reacts both before and after. In fact, one can track these speeches by the second and see immediate market reactions. It is common to see the market correctly anticipate what the Fed will do and just as common to see it misread what will happen. In each case lies profit for the news trader.

News Trader Tools

A news trader uses historical data to prepare for how the market will react to breaking news such as earnings reports. They study market psychology targeting specific stocks or market niches. By setting up alerts and using news queries a trader can stay ahead of most of the market in getting and reacting to breaking news. They enter bullish or bearish positions tailored to profit from brief fluctuations in prices. A very common approach is to fade a stock. The news trader buys into a quickly evolving trend and sells as it gains steam and before market sentiment weakens. The news trader is not interested in maximizing profit because would risk getting caught in a trend reversal.

An interesting feature of national elections is that the market often follow election year hype instead of consulting historical fact. For example, the Republican Party is considered pro-business and therefore should be good for the stock market. When there is the prospect of a red wave stocks may go up. But historically the stock market does a little bit better when Democrats win than when Republicans win. With the Republicans expected to pick up seats in both houses of Congress, the market may rally as results are announced. However, news traders will just as likely be taking profits as more investors jump into the market.

At Top Gun Options we commonly trade the news using hedged options strategies. Some of the news events and market reactions that we trade are so predictable and repetitive that it is almost like printing money instead of trading options. To learn how to trade options, expand your skill set, and work with dedicated traders in focused squadrons consider joining Top Gun Options today.