News Trading: How to Trade the News Before, During and After the Release

What is news trading?

News trading is trading around news that moves prices abruptly: rate decisions, inflation and labour market data, quarterly results or unexpected events. The trader uses the move that a surprise triggers, or protects against it. It is mostly done in liquid markets such as the major currency pairs, indices, gold and Bitcoin.

The first price jump is traded today by computers that process figures in fractions of a second. A retail trader who clicks on the headline arrives too late and often pays the widest spread of the day. For most traders, news trading therefore means being well prepared, sitting out the first minutes and then trading with a plan. How to read the figures themselves is explained on the page how to read an economic calendar.

Which news is suitable for trading?

Scheduled high-impact releases are best suited, because the time and the expectation are known in advance. Unexpected news often moves prices more, but cannot be planned. In between are speeches and press conferences, whose date is fixed but whose content is not.

What happens in the first minutes after a release?

In the seconds before a major release, many market participants pull their buy and sell orders. The order book thins out, the spread widens, and even small orders move the price. When the figure comes out, the price often jumps across several price levels without any trading in between.

This has consequences for your orders:

• Spread: the gap between bid and ask is a multiple of its normal size. An entry in this minute starts with a clear loss.
• Slippage: stop and market orders are filled at the next available price, which can be far from the one you wanted. In this situation a stop is not a guaranteed exit price.
• Gap: for stocks and indices, quarterly results often come before or after trading hours. The price then opens with a gap that jumps over a stop.
• Two directions: the first candle often swings both ways, because algorithms react first to the headline and then to the details.

After a few minutes the orders return, the spread normalises, and the market starts to digest the news. From here a retail trader has a fair chance.

Before the release: how to prepare

Preparation matters more than reaction. Check the time, consensus and previous value of the release in the calendar, and decide in advance what you will do if the surprise is to the upside, to the downside or if there is none.

1. Know the release and the expectation: time in UTC, consensus, previous value and which other figures come out at the same minute.
2. Write down scenarios: what would argue for a move, what against it? Which level on the chart would be the first target, and which the point at which the idea is wrong?
3. Check open positions: close them, reduce them or set the stop so that even a gap remains bearable.
4. No orders close to the price: a limit or stop a few points away is often triggered at a poor price in the first second.
5. Fix the size: the position size follows from the distance to the stop and the possible slippage, not from the hope of a big move. More on this in risk management.

Approaches to news trading

There are four common approaches. They differ in when you enter and how much risk from spread and slippage you carry.

Wait and follow the breakout

You wait until the first candle after the release has closed, for example the first 15m candle. Its high and low form a range. A close outside this range in the direction of the surprise is the entry, and the stop goes on the other side. This approach misses the first part of the move but avoids the most expensive minute.

Straddle: orders on both sides

Before the release, one stop order sits above and one below the price, so that the move is caught in either direction. That sounds elegant but is tricky in practice: the orders are filled with slippage, and if the price swings up first and then down, both are triggered. Anyone using this approach needs a broker whose execution they know, and small positions.

Trading against the spike

If the price runs far beyond what the surprise justifies after a figure, some traders bet on a pullback. This works when the first reaction was exaggerated, for example with mixed signals from headline and core. It fails when the news starts a new trend, and is therefore one of the riskier approaches.

Trading the pullback to the breakout level

After the first burst, the price often returns to the level it broke at the release. If the level holds, that is an entry in the direction of the surprise with a clearly defined stop. It is the same idea as the retest of a trendline or of a support and resistance level.

Follow the breakout or trade against the spike?

Both approaches start after the first jump, but with opposite assumptions. Those who follow believe the market prices in the news only gradually. Those who fade believe the first reaction was exaggerated.

After the release: direction, pullback and retest

After major figures the move often continues for hours, because large market participants do not rebuild their positions within a minute. Just as often the market gives the jump back when the details put the headline into perspective. The closed candle of the higher timeframe shows the difference: if the price holds beyond the breakout level after an hour, that argues for the direction.

Two questions help with the assessment: does the reaction fit the surprise, meaning does a currency rise after higher inflation? And does it fit the news situation of the past weeks? A reaction against the surprise is a hint that the market had expected more or that another topic matters more.

Teaching examples

The following cases are teaching examples, not real events, and deliberately give no price moves in pips or percent.

Teaching example 1: inflation data and the breakout from the first candle

For US consumer prices the consensus expects 0.3% month on month, 0.5% is reported, and the core rate is also above the consensus. The trader has no position before the release. The first 15m candle after the release swings both ways and closes in favour of the dollar.

The next candle closes beyond the range in the direction of dollar strength: that is the entry, with the stop on the other side of the first candle. Had the price fallen back into the range instead, the trader would have skipped the release.

Teaching example 2: an unexpected headline

In the middle of a quiet session, a news agency reports that a central bank is considering an unscheduled meeting. The price jumps, and the source is unclear at first. Anyone holding a position checks the stop and the size, but does not trade the headline.

Half an hour later the central bank confirms or denies it. Only then is it clear whether the move will last. With unexpected news, the source matters more than speed.

News trading in each trading style

How you trade the news depends on how long you hold a position and which timeframe determines the entry.

News trading in scalping (15m, 30m)

In scalping on 15m and 30m, news trading is at its most direct, but also at its most expensive. Spread and slippage in the first minute eat up a large part of the target, so the first closed 15m candle after the release is the earliest possible entry. The breakout from its range or the first pullback to the breakout level are the usual approaches, with a stop behind the range.

Before the release the scalper is flat. At the start of the session, they check which high-impact releases fall into their trading hours and plan breaks. US data at 8:30 a.m. New York time fall into the overlap of the London and New York sessions, when the moves are often most pronounced. Crypto trades around the clock; the major US releases affect it just as much, and unexpected news can also arrive at the weekend.

News trading in day trading (1h, 2h)

In day trading on 1h and 2h, the closed 1h candle after the release is the yardstick. It shows whether the market accepts the surprise. An entry follows the close beyond the range or the pullback to the breakout level, with the stop behind the range of the release candle.

Before the release, the day trader reduces open positions or moves the stop to break-even. On days with several major releases, such as the employment report and a central banker's speech, it is often better to trade only one opportunity. Positions are closed before the end of the session, so overnight gaps play no role, but early-morning releases do.

News trading in swing trading (4h, 8h)

In swing trading on 4h and 8h, you do not trade the first minute but the consequences of a release over days. A rate decision or inflation data can start a new swing: if the 4h or 8h candle after the release closes beyond an important structure, that is a signal for the days ahead.

The swing trader usually holds existing positions through the release, with a stop behind a real structure and a size that can absorb a gap. If a rate decision falls within the planned holding period, it can make sense to enter only afterwards. Over the weekend, unexpected news reaches the forex market as a gap on Monday.

News trading in position trading (12h, 1d)

In position trading on 12h and 1d, a single release is rarely an entry signal. What is traded is the direction set by a sequence of news: a central bank changing course, inflation falling over months. Single spikes are left aside as long as they do not turn the broad direction.

The stop is far enough away that no single release reaches it, and the position is small accordingly. A new entry tends to come after a central bank meeting rather than before it. In the FinScans cockpit, the news situation counts for more than the technicals on the long horizon, as the methodology on horizons explains.

News and technical signals

Around news, a particularly large number of false signals appear. A break through a line in the first minute after a figure is often a reaction that runs back, and a pattern that looked clean before the release can be invalidated within one candle. A technical signal shortly before a high-impact release is therefore less well supported than the same signal on a quiet day.

FinScans signals exist for forex and crypto pairs. They are updated candle by candle and are often closed early when the market turns; the methodology describes this. Read a signal that appeared shortly before a major figure with caution, and wait for the closed candle after the release.

How to use FinScans for news trading

The FinScans economic calendar shows the time, importance, consensus and previous value of upcoming releases, all times in UTC. In the cockpit of an asset, a heads-up appears at the overall assessment when a high-impact release is due in the next hours or has just been published, and the box "Economic data for …" rates the published figure as better or worse than expected.

For unscheduled news there is the news page, which can be filtered by asset class and report type. In the cockpit, the news situation summarises whether the reports of the past 30 days are rather bullish or bearish for an asset and how much impact they had, as described in the methodology on the news situation. The following block shows how many general news reports FinScans has analysed in the past 30 days, and the latest of them:

The next high-impact releases and the most recently published values from the FinScans calendar:

Hybrid checklist: what the machine reports, what you check yourself

FinScans provides the releases, the assessment of published figures and the news situation. Whether and when you trade is your decision, as described in hybrid trading. Around a piece of news, check:

1. Is a high-impact release due within my holding period, and do I know the consensus and the previous value?
2. Have I decided in advance what I will do if the surprise is to the upside, to the downside or if there is none?
3. Is my position small enough and my stop set so that slippage or a gap remain bearable?
4. Has the first candle after the release closed, and is the spread back to normal?
5. Does the reaction fit the surprise and the news situation in the cockpit?
6. Is the source of an unexpected report confirmed?

Frequently asked questions

Is news trading suitable for beginners?

Only with great caution. In the first minutes after a release, spreads are wide, stops are filled with slippage, and the direction often changes. For beginners it makes more sense to avoid major releases at first, to protect open positions beforehand and to trade only after the first closed candle. Small positions limit the cost of learning.

Why does the price jump back and forth before a release?

Because many market participants pull their orders shortly before the release. With fewer offers in the market, even small orders are enough for noticeable swings, and the gap between bid and ask widens. Some traders also position themselves for the expected figure. These moves say little about the later direction and often trigger stops that sit too close to the price.

Does a straddle work before major figures?

Sometimes, but it is riskier than it looks. The stop orders above and below the price are filled with slippage in the first second, and if the price swings first one way and then the other, both are triggered. Anyone using it knows their broker's execution, chooses small positions and includes the cost of the wide spreads.

Which news moves the forex market most?

Usually the rate decisions and press conferences of the major central banks, as well as inflation data and the US employment report. They change the expectations for interest rates, and rate differentials are an important driver of exchange rates. Which figure matters most at a given time depends on what the market is watching. In the FinScans calendar such releases are marked with three dots.

Sources

• Murphy, John J.: Intermarket Analysis: Profiting from Global Market Relationships, John Wiley & Sons, 2004.
• Lien, Kathy: Day Trading and Swing Trading the Currency Market, John Wiley & Sons.
• U.S. Bureau of Labor Statistics: The Employment Situation, monthly release.