Keep an Eye on the News while Day Trading - dummies

Keep an Eye on the News while Day Trading

Although day traders spend a lot of time with market indicators based on stock price, volume, and other security trading data, information that comes from news releases and news events is at least as important and sometimes more so.

Much of the news is regularly scheduled and much predicted: corporate earnings, Federal Reserve discount rates, unemployment rates, housing starts, and the like. When this information comes in, traders want to know how the actual results compare with what was expected and how this info fits with the overall bullish or bearish sentiment of the market.

The second type of news is the unscheduled breaking event, such as corporate takeovers, horrible storms, political assassinations, or other happenings that were not expected and that take more time for the market to digest. That’s in part because these events have the ability to change trends rather than play out against them.

In some cases, the markets will halt trading to allow this information to disseminate; in others, traders have to react quickly, based on what they know now and what they suspect will happen in the near future.

What’s the difference between risk and uncertainty? Risk is something that happens often enough that people can quantify the damage. Uncertainty is something that may happen, but no one can figure out the likelihood. A fire that knocks out power to Midtown Manhattan sometime in the next ten years is a risk; the invasion of the planet by aliens from outer space is uncertainty.

News can happen at any time. It can change a trend and throw all your careful analysis into disarray. For this reason, careful analysis is no substitute for risk management. Watch your position sizes and have stops in place so that you exit when you need to.