The Power of Trading the News: Seizing Opportunities in a Volatile Market

The fastest and often most exhilarating trading system for many investors is trading the news. This approach involves capitalizing on trading opportunities that arise from the heightened volatility surrounding news events. But what exactly constitutes news?

News can be broadly classified into two categories. The first category is periodic or recurring news, which includes scheduled releases of information that significantly impact the markets. Examples of such news include earnings reports, economic updates, OPEC press conferences, G20 summit announcements, and political election results. While most of this data is already factored into the markets to some extent, some news has the potential to move the markets rapidly, resembling rumours or gossip. As more traders learn to speculate based on such news, the impact becomes even more pronounced. Imagine having the foresight to anticipate and act upon these opportunities.

Let's consider a simple example. When Elon Musk tweeted his affinity for Dogecoin, the cryptocurrency experienced a meteoric rise in value almost instantly. This demonstrates the power of news and its potential to create substantial market movements within a short period.

Now, instead of delving into the details of well-known news events, let's explore a more practical approach to speculating in financial markets. One effective strategy is to choose a reliable broker and leverage their services to enable larger trades. This approach empowers traders to seize significant opportunities and potentially yield substantial profits.

An analogy can help illustrate the significance of this strategy. Imagine if someone whispered the results of a football match in your ear before the game even began. Would you bet on it? And if so, how much would you be willing to invest? We are not advocating for match-fixing or insider trading, but rather emphasizing the importance of being informed about upcoming events and reacting swiftly.

It's worth noting that this particular trading strategy cannot be executed by algorithms alone. Human intervention is indispensable in effectively capitalizing on news-driven opportunities. While algorithms can perform various tasks, the ability to interpret and act upon breaking news in real-time remains a uniquely human trait.

News itself can be categorized into two types: periodic or recurring news, and unexpected or one-time events. Periodic news refers to scheduled releases that impact specific stocks, entire industries, or the markets as a whole. Examples include interest rate announcements by central banks, economic data releases like employment figures or inflation rates, and quarterly earnings reports from companies.

On the other hand, unexpected news encompasses unforeseen events that can affect markets significantly. These events include terrorist attacks, geopolitical flare-ups, or the threat of debt default by highly indebted nations. As a general rule, unexpected news tends to have a more negative impact than positive.

To illustrate the influence of news on market movements, let's examine recent examples. When Alibaba's founder, Jack Ma, relinquished control of Ant Group, its sister company, the stock surged by 8% in a single trading session. Conversely, Tesla shares experienced a decline of 28% following concerns about CEO Elon Musk's distraction with his Twitter activities, significantly underperforming other automakers.

Brexit also provides notable examples of news-induced market volatility. The British Pound plummeted to a 31-year low immediately after the Brexit vote, experiencing a 10% drop against the dollar. This trend repeated itself in 2022, when the Pound hit another record-low of $1.035 following a disastrous mini-budget and political turmoil.

Commodities are also subject to news-driven price fluctuations. The global oil price soared to over $120 per barrel amid concerns about supply shortages following Russia's invasion of Ukraine. Additionally, changes in leadership within prominent companies, such as Walt Disney's appointment of Robert Iger as CEO, can trigger significant shifts in stock prices.

Furthermore, unforeseen circumstances, like extreme weather conditions affecting crop supplies, can lead to price hikes in commodities such as coffee beans. Brazil, the largest supplier of coffee beans to the US, faced such challenges recently, affecting consumers worldwide.

One noteworthy event that showcases the impact of news on the financial markets is the Federal Open Market Committee's (FOMC) interest rate announcement. In mid-March 2020, the FOMC cut its main lending rate by 1% in an effort to alleviate the economic effects of the crisis. This decision, coupled with the announcement of plans to purchase $700 billion in government securities, led to a significant drop of 3,000 points in the Dow Jones Industrial Average, marking its worst day since the 1987 crash.

Economic data releases, such as the US jobs report, also hold considerable influence over market sentiment. Traders closely monitor employment figures as they greatly impact consumer confidence and spending, which account for 70% of the US economy. A significant difference between economists' forecasts and the actual numbers can indicate either economic weakness or strength. For instance, when the US government announced that nonfarm payroll employment had increased by 916,000 jobs in the previous month, significantly surpassing expectations, the Dow Jones Industrial Average closed up 171 points after a volatile trading session.

Another important aspect of news-driven trading is the earnings season. A company's stock price can skyrocket or plummet minutes after the release of earnings reports that either impress or disappoint investors. While trading during the earnings season is not obligatory, it is crucial for traders with substantial positions to assess factors such as market conditions, investor sentiment, short interest, earnings expectations, valuations, competitors' performances, and recent price trends before deciding whether to make changes to their positions.

For those interested in news-driven trading, it is essential to stay informed about important events by utilizing readily available online resources. Furthermore, downloading news applications like Reuters on your phone can provide the quickest access to breaking news from around the globe.

In conclusion, capturing news stories immediately and capitalizing on market reactions can be highly profitable and thrilling. Unexpected news often presents opportunities, although it tends to be accompanied by negative developments. While risks are inherent in trading, the potential for lucrative returns is undeniable, particularly in this era of instant news. To stay updated and receive more information on news trading strategies, feel free to email kyri@chumpprofit.com.

Disclaimer: The views expressed in this article are solely those of Chump Profit Team and do not constitute financial advice or endorsements. Traders should conduct thorough research and exercise caution while participating in news-driven trading.