Trading the news means you need to be able to trade fast, with the fastest news feed, and quantify and categorize news rapidly.
Trading the news is a quickfire style of Stock, FX, or Commodity trading. The trader seeks to gather and interpret the market newsfeed as quickly as possible to initiate short-term trades to take advantage of profitable situations. Depending on the news, traders are typically ready to go long or short on stock.
This article will share the twelve lessons I have learned when trading the news over the past 20 years.
1. Understand free news is delayed
You cannot trade the news without a reliable and lightning-fast newsfeed. The typical delay between the announcement of breaking news and that news reaching the free news feeds like Yahoo, CNN, CNBC, and even Bloomberg TV is typically 30 minutes. In quickfire trading, 30 minutes is essentially 29 minutes too long.
2. Real-time news feeds cost money
If you are trading news by investing in stocks as soon as the news is released, thereby gaining a short-term swing in the stock price, you need to pay for a real-time news subscription. Your online broker may also provide real-time news included with your service; see our review of the top 10 real-time news and analysis sources.
Trading the news can be profitable, but there is a cost to that profit, and that cost is a premium subscription to a real-time financial news feed. Four key news services produce, report, and broadcast real-time news.
There is one real-time news source that is actually free. Benzinga Pro offers a free real-time newsfeed.
Benzinga vs Bloomberg vs Reuters Eikon vs Xenith
|News Service||Benzinga Pro||MetaStock R/T Xentih||Reuters Eikon||Bloomberg Terminal|
|Powerful Chart Analysis||✘||✔||✔||✔|
|Visit News Service||Benzinga||MetaStock||Refinitiv||Bloomberg|
Table 1: Benzinga vs. Bloomberg vs. Reuters Price Comparison *North America Data **Global Data
As you can see, in terms of pricing for real-time news, Benzinga Pro premium is half the price of its nearest competitor MetaStock Refinitv. However, MetaStock Xenith does come with very powerful stock chart analysis, backtesting, and forecasting.
So you can see that for North American traders, Benzinga is 1/10th of the cost of a Bloomberg Terminal or Thomson Reuters Eikon service.
3. Get a low cost fast real-time newsfeed
Benzinga Pro is a real-time news service designed for day traders and is a fraction of the cost of a Bloomberg Terminal. Benzinga delivers value with fast real-time market-moving news to give you a trading edge. Additionally, a squawk box, direct access to the news desk, and original reporting are significant advantages.
Benzinga is a credible news source established in 2010 by Jason Raznik. Benzinga is a major newswire employing many reporters and operating a live newsdesk. Benzinga provides data to brokerages and other news outlets such as TradeStation, TD Ameritrade, MarketWatch, Bloomberg, Thomson Reuters, and many more.
4. Buy the rumor, sell the news
On Wall Street, there is a saying that you “buy the rumor, sell the news.” That’s great if you mingle in the rumor circles that might pay insiders, employees, and good buddies with the CEO. However, we mere mortals might not have these advantages. I have also heard too many rumors that have backfired, tips from a friend in the industry, and the nod from the supplier to a new startup company with a bright future.
Apart from being illegal, insider trading of this nature, especially when second-hand, is completely unreliable.
5. Economists are often wrong
But to some extent, we all play the news. One way or another, it gets us. Turn on any news channel, and the reporters are constantly overstating the meaning of things. We should not believe everything we read. One of my favorite headlines was from USA Today.
“Gas price decline may spur inflation.”
Honestly, can you believe that!
Of course, economists can rationalize anything, but I am not buying it. If we take the news with a pinch of salt and make our minds up about its real meaning, it can be useful. But too much news can drag you in with the sheep on the road to the slaughterhouse.
6. Learn how to analyze trading news
There are those that trade the news with some success. The problem with trading the news is it is not hard and cold facts; it is feelings, interpretation, and an abstract appreciation of how the public interprets news events. There are three key variables to the news impact equation.
7. The news trading equation
The three factors influencing stock prices for a financial news trader are the speed the news is delivered, the impact on the company, and the market’s perception of the news.
Speed of News + Impact on Company + Perception of Traders = Price Fluctuation
Speed of News
When breaking news hits the market, it can take time, usually the first 30 minutes, for the stock price to start to move; this is why free news services are typically delayed; this enables companies to sell real-time news feeds at a premium to professional traders. If you get the news quickly, you have a chance to react before others; this is a distinct market edge.
Impact on Company
You need to decide if the impact of the news on the company is high or not even negligible. The news might sound shocking, but will it really impact a company’s profits or future outlook? Let’s take a look at an example.
The Tide Pods Challenge
At the start of 2018, there was an idiotic internet meme and youtube phenomenon where teenagers challenged each other to eat tide pods. Tide Pods, manufactured by Proctor & Gamble (Ticker: PG), are great for washing clothes but are deadly when consumed by humans. This madness resulted in 6 people’s dead.
How would you interpret this news?
In the three months to April 2018, P&G stocks dropped 15% and took nine months to recover. But in the same period, the S&P500 dropped 9% and took eight months to recover. So, overall, this potentially bad news, while having some impact, did not really impact P&G. This is because the bad news did not make a dent in P&G’s bottom line profit. The Tide brand only makes up a small proportion of the overall P&G product portfolio.
Perception of traders
Market news is not your perception, but how others perceive the news.
Trading the news can be very difficult; there is a strong emphasis on Fundamentals and Technical Analysis.
The news is completely open to interpretation; you must try to understand how others will interpret it, not how you interpret it.
Viewing news with a contrarian attitude or making your own decisions on what that news really means is absolutely critical.
But when trading the news, it is most important that you understand the following:
What effect will the news have on the market participants because those investors will push the price up or down?
Benzinga Pro, our review-winning news service, provides helpful bullish, bearish, and sentiment ratings for the news to help you assess what impact that news might have on a stock; it is well worth looking into.
Check Out Our Review of Benzinga PRO Real-Time News – Voted Best for Traders
8. The market prices in the future
Most people forget that the market is always trying to price in the future; it is not trying to price in the now. Let’s take, for example, the Coronavirus pandemic. Even though the virus outbreak is crippling world economies, causing mass unemployment and widening the distribution of wealth and inequality, the stock market recovered quickly.
How can this make sense? the reason is that central banks have reacted dovishly to pump trillions of dollars into the economy to stave off economic collapse. The market has recovered because the market envisions a future where money is cheap, and when the virus is defeated, the business will be on the rampage again.
But if news of a second wave becomes visibly real and governments have to start lockdowns again, there will be a crash like no other. This leads us to the next section, macroeconomic news.
9. Macroeconomic news affects the entire market
As you have seen in the example above, macroeconomic news can affect the broader economy, stock markets, and all the companies on those stock markets. The history of stock market crashes started with news of seismic proportions.
10. Accept earnings surprises are not always surprises
So you are waiting to trade an earnings release for a high-growth company with a PE Ratio of over 100. This means the company has a very high valuation compared to its current earnings. In this example, positive earning surprises are expected from this company. So do not expect a huge and immediate surge in stock price when there is an earnings beat or upside surprise. Don’t forget the market is pricing in the future.
But if a high-growth company has a significant miss, this is where the real profits come in, shorting the stock. To short the stock on time, you need a real-time news feed.
11. Know the news you trade defines your profits
They are deciding what area of the news you want to trade is important. Many professional traders profit from Mergers and Acquisitions News, New Contracts, and Food & Drug Administration (FDA) approvals.
How? Because these news topics tend to be incredibly important to the companies affected, the importance of the news and the impact dictate the price swing. This is where a premium newsfeed needs to excel.
Benzinga Pro Newswire Enables Granular News Trading
Benzinga Pro allows you to configure your newsfeed based on your trading preferences.
Benzinga Pro Newsfeed Alerts – Alarms On Specific Sectors Or Categories
You can also choose to be alerted to specific categories in your newsfeed. For example, you can select to be alerted via email or a desktop pop-up and sound if any hot news or market-moving news is announced.
Any of the categories above can be flagged for alerts. This is hugely beneficial for the trader, so you do not need to watch the newsfeed constantly; you can be trading and hear the alarm as a call to action.
WatchList Trade Alerts
Another bonus is that you can set up as many watchlists as you wish and receive alerts on stocks in the watchlist, for example, those stocks that really matter to you.
You can get real-time email alerts, sound notifications, and even summary emails for your watchlist.
Benzinga Options Alert
Benzinga offers Stock options alerts when they see anomalies or opportunities for options traders. This specific upgrade for all service tiers is not included in the basic price.
12. Tune Your skills in interpreting the news
Interpreting the news is a skill in its own right, and Benzinga Pro helps you do that by categorizing the perceived impact of the news and enabling you to see how much the stock price has moved since the news went public. This is one of the single best features of any real-time news provider.
Introducing Benzinga’s Price Changed Since Published feature.
Price Change Since Published
Benzinga prides itself on releasing news in time for you to react to a market move and profit. And to prove this exact point, they have added a great new feature called Change Since Published. It is a very simple upgrade to the existing newsfeed, but it demonstrates their continual innovation.
If you hover your mouse over any stock ticker in the newsfeed, a mini-chart will appear, enabling you to see if the news positively impacted the stock price. This a very nice feature that I am sure will be further developed.
In the example above, you can see an announcement that Cronos Group will receive a strategic investment from Altria; the stock moved 21% over the next two trading days.
Here is another example of how real-time news can impact the market. On December 11th, President Trump announced that the Farm Bill is in “good shape.” Benzinga has categorized all potential companies that would benefit from a positive farm bill and grouped them into a “Change Since Published” report. Inside the chart, you will see a vertical line or a Change Since Publish label; this vertical line is the exact time the news broke on the Benzinga newswire.
As you can see, of the six stocks targeted by Benzinga analysts, four stocks have been gaining since the news was released. That is an edge in the market.
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