What Is a News Trader?
A news trader is a trader or investor who makes decisions based on news announcements. Breaking news, economic reports, and other reported events can have a short-lived effect on the price action of stocks, bonds, and other securities. News traders try to profit by taking advantage of market sentimentleading up to the release of important news and/or trading on the market's response to the news after the fact.
Key Takeaways
- News traders use scheduled announcements to take up positions that profit from short-term volatility.
- News traders can also trade significant, unplanned events that impact the domestic or global economy.
- News traders tend to hold positions for a very short period of time as the impact of news usually fades quickly after being made public.
Understanding News Trader
The adage"buy the rumor, sell the news"recognizes that rumors have one effect on a security's priceand news can have the opposite effect. For this reason, news traders focus on trading in the time leading up to the news or immediately after, when the market is still reacting to the news. These periods are characterized by a high amount of volatility that creates an opportunity to profit.
News traders try to profit from the timing or likely content of scheduled news announcements for the most part. When the news is scheduled, as with earnings releases or Federal Reserve meetings, news trading is more about playing the odds on the likely significance of the announcement. In fact, the Federal Reserve has tried to soften the market impact of its proclamations by foreshadowing every major policy decision well in advance, but even these policy signals have become tradable events.
When the news is a surprise to everyone, as in a natural disaster or black swan event, news traders try to position themselves to profit. Sometimes this means playing the volatility or making a call on the immediate directional impact of the news on current price trends.
In most cases, news traders are a type of day tradersince they generally open and close trades in the same day.
News Traders' Tools and Strategies
News traders leverage many different strategies with afocus on market psychology and historical data. Traders may look at historical data, for example, such as past earnings reports, to predict how upcoming news, like an upcoming earnings report, is likely to affect prices. By becoming familiar with specific markets, news traders can make educated guesses as to whether a security will increase or decrease in price following a news report.
News traders can also set up queries and alerts to gather breaking news and correlate it with changes in the price action on a chart. If certain criteria are met, the news trader will then enter a bullish or bearish position depending on the trading strategy. As news is timely and usually short-term in impact, the opportunity to profit only exists for as long as the news is fresh.
A popular strategy used by news traders is known as fading, which involves trading in the opposite direction of the prevailing trend as enthusiasm wears off. A stock might open sharply higher, for example, after a positive earnings announcement during pre-market hours. News traders might watch for this optimism to reach a high and then short sell the stock intraday as optimism wears off. The stock might still be trading sharply higher compared to the prior day, but the traders may have profited from the difference between the highs and lows of the day.
FAQs
This strategy is based on the concept of acting on market expectations and speculation rather than waiting for actual events or announcements. Traders often buy stocks or other securities based on rumors or anticipation of a positive event and sell them when the actual news breaks, regardless of its content.
What does "buy the rumor sell the news" mean? ›
'Buy the rumour, sell the news' promotes the idea of capitalising on market movements by opening a position on a rumour, in anticipation of an announcement that could cause a shift in the markets. The trader will then close their position once the news has broken, often at a considerable profit.
What does sold the news mean? ›
What does buy the rumour, sell the news mean? 'Buy the rumour, sell the news' is a well-worn expression, and in the context of trading, it means that if good news is expected sometime in the future, the price will often move higher in anticipation of that date, but not necessarily after.
What is the meaning of news trading? ›
A news trading strategy involves trading based on market expectations, both before and after a news release. Trading on news announcements can require you to make quick decisions, as the financial markets may be impacted almost immediately.
What is a sell the news event stock? ›
The adage "buy the rumor, sell the news" recognizes that rumors have one effect on a security's price and news can have the opposite effect. For this reason, news traders focus on trading in the time leading up to the news or immediately after, when the market is still reacting to the news.
Why does a stock drop after good news? ›
When a company releases an earnings report, a fundamental reaction is often the most common. As such, good earnings that miss expectations can result in a downgrade of value. If a firm issues an earnings report that does not meet Street expectations, the stock's price will usually drop.
Why do they shout at the stock exchange? ›
Open outcry is a method of communication between professionals on a stock exchange or futures exchange, typically on a trading floor. It involves shouting and the use of hand signals to transfer information primarily about buy and sell orders.
Can you sell a story to the news? ›
Selling your story to the press can be a rewarding experience, but it's important to understand the process and know where to begin. From selling to newspapers and magazines to working with content agencies like us, there are various options available to help you get your story out there.
What is a market rumor? ›
Rumours mongers transmit such market or investment information devoid of disturbing about the reality of the piece of information. In such cases, the Rumors have the latent to drive up the prices of the stocks.
How to trade using news? ›
The most common way to trade news is to look for a period of consolidation or uncertainty ahead of a big number and to trade the breakout on the back of the news. This can be done on both a short-term basis (intraday) or over several days.
Newswires are a direct source of financial news and press releases. Most trading platforms have news feeds connected to some of the most popular newswires.
Where do traders get their news? ›
This involves reading stories from various newspapers and financial websites, as well as listening to updates from financial news networks, such as CNBC and Bloomberg. The futures markets, as well as the broad market indexes, are noted as traders form opinions about the direction they expect the market to trend.
What are the different types of news in trading? ›
Examples of the Types of News that can be “Traded”
- Unexpected news.
- Federal Reserve rate announcement.
- U.S. employment situation summary (also popularly referred to as the “jobs report”)
- Earnings reports (applicable to investment portfolios or stocks)
This strategy is based on the concept of acting on market expectations and speculation rather than waiting for actual events or announcements. Traders often buy stocks or other securities based on rumors or anticipation of a positive event and sell them when the actual news breaks, regardless of its content.
How to use the news to buy stocks? ›
Key Takeaways
- Much of the news that moves the markets is scheduled, such as earnings reports and economic updates. Plot your strategy in advance rather than reacting on the fly.
- Most news events are good for one asset class and bad for others. Hedging your portfolio cushions losses.
- Avoid reacting to crowd sentiment.
A buy-in is a contractual remedy available to the purchasing counterparty to a financial transaction in the event that the selling counterparty fails to deliver the purchased securities.
What does we buy and sell mean? ›
A buy and sell agreement assures a smooth transition of ownership and business continuity in the event of a departure of a partner or large equity owner. The agreement is a legally-binding contract that establishes how the departing owners' shares will be obtained by the remaining partners.
Who said buy when everyone is selling? ›
Famous and super-rich investor Warren Buffett is credited with a quote something along the lines of “buy when everyone else is selling.” Buffett is also credited with the line “Be fearful when others are greedy and greedy when others are fearful.”
Who actually buys stock when you sell it? ›
In some cases, your broker sends your shares to the exchange floor where a “market maker” buys your shares and then works on finding a buyer. Most stocks and ETFs trading on the New York Stock Exchange or the Nasdaq NDAQ -0.8% are highly liquid because there are many buyers and sellers.
