News-Driven Trading

In This Lesson

Trading on news and catalysts.

Duration: 25 min

Overview

Trading on news and catalysts. This lesson will provide you with practical knowledge and actionable insights you can apply to your trading immediately.

By the end of this lesson, you'll have a clear understanding of the concepts and be able to apply them in real trading scenarios. Let's dive into the details.

Key Concepts

News Catalyst Types

Different categories of news have different market impact patterns and duration.

Information Efficiency

How quickly markets absorb and price in new information affects trading opportunities.

Sentiment vs Facts

Market reaction often based on sentiment interpretation rather than actual news facts.

Sector Contagion

How news about one company affects related companies in the same sector.

News Trading Windows

Optimal time periods for capitalizing on news-driven price movements.

Practical Application

Now let's put this knowledge into practice. Follow these steps to apply what you've learned:

1. Set up real-time news alerts for stocks in your watchlist and key sectors
2. Develop quick news impact assessment: high/medium/low impact classification
3. Check pre-market reaction to gauge institutional sentiment before market open
4. Position for news reaction: small starter position, ready to add on confirmation
5. Have clear exit strategy: time-based, profit target, or momentum exhaustion
6. Track news type vs price reaction patterns to improve future predictions

Common Mistakes to Avoid

Trading Stale News

Reacting to news that has already been fully absorbed by the market.

Not Understanding News Impact Hierarchy

Treating all news equally instead of understanding which types move markets most.

Ignoring Pre-Market Reaction

Not checking how news is being received in pre-market before market open.

Key Takeaways

Speed is critical - news trading opportunities are short-lived
Understanding news hierarchy helps prioritize which stories to trade
Pre-market reaction provides valuable insight into institutional sentiment
Sector effects can provide additional trading opportunities beyond the news stock
Successful news trading requires quick decision-making and execution

Your Next Steps

Ready to continue your learning journey? Here's what to do next:

• Review this lesson's key concepts
• Complete the practical exercises
• Take notes on what you've learned
• Practice with a demo account
• Move on to the next lesson when ready