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“News Trading” – Is It Profitable To Trade News?

Posted Sunday, March 25, 2018 by
Arslan Butt • 2 min read

Over the course of my trading and mentoring career, I have come across a very common question and that is whether news trading or fundamentals trading is profitable. Today’s article is based on my personal trading experience. I have come to the conclusion that ‘news trading’ and fundamental analysis are an integral part of trading. Personally, I do not use ‘news trading’ in my trading and this article explains why.

I am talking about news and fundamentals trading in two different perspectives. I will be talking about ‘news trading’; not fundamental analysis (which will be covered next week).  

‘News Trading’ – More Like Scalping

News Trading is a trading strategy where forex traders try to capture a news-based price movement really quickly. Evoking the Styles of Forex Trading I shared a day before, ‘News Trading’ is similar to a trading style called scalping. It is a trading style where a trader goes after small moves in the market over short time frames. For instance, using 1M, 5M, and 15M time frames (M means minute).

It is a bit different from what I typically do. In fact, news trading and scalping not only require ample knowledge and experience, but also very advanced trading software and expert advisors which manage your trades. There are so many out there on the market, but I recommend not using them on real accounts.

Scalping on news can be dangerous sometimes as in this era traders are very knowledgeable. Due to multiple trading forums like FX Leaders, traders get the very best forecasts from professional analysts and traders. Thereby, they start taking positions and price in the upcoming news because of updated knowledge.    

Therefore, despite the strongly positive or negative announcements, we don’t see one-sided movement.

Did you guys notice?

On March 21, the Fed Funds Rate hike was supposed to make the dollar stronger and most of the immature traders were buying that day. But, the greenback actually took a U-turn to make a bearish move to hit the stops of all the news traders.

The 1.75% rate was supposed to support the greenback and be bearish for Gold. Despite that, Gold made a dual move and finally turned bullish to hit the stops of the news traders.

Let’s take a real-time example of Gold on March 21 FOMC day. You can see the 5-minute chart of Gold. Owing to volatility and sudden moves, most trades are entered after the market has already moved 10-20 pips.

Gold – 5 – Min Chart

This leaves you with only 10 pips profit. Will you be able to close the position quick enough to bank this profit? I’m afraid the answer is NO. In fact, you may end up with a loss. Besides this, Gold was supposed to move downward but ended up with a bullish trend. So, it’s not as easy as it looks.

I hope this article will help you decide if ‘News Trading’ is really what you want to go after. Have a great weekend, see you all again on Monday with some great Forex trading signals and analysis.

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