What is the importance of acting on news announcements in trading?
Updated: May 11
Those who know stock markets will tell you that they show a continually increasing trend for a long time. However, the random tailspins test the staying power of investors. The spriest of the investors will be able to earn notwithstanding the happenings all over the world. Stock investors have got to see news announcements and make decisions accordingly. Economic reports, breaking news, and different events reported could affect the price behavior of bonds, stocks, and various securities briefly. Investors try to capitalize on market sentiment before some important news or make decisions based on the market's reaction to the news.
Some investors make several decisions based on price shifts and trends in a day. However, long-term investors could do so occasionally.
It is right to classify news into two general groups.
These are arranged news releases. Examples are the accouchements of the FRS on interest rates, companies' reports of trimestral earnings, and financial information releases.
These are sudden news. Examples are an abrupt geopolitical tension and a sovereign default threat. There is more possibility of one-time news being bad than good.
Below are some clever things that news traders should do.
News traders should be aware of dates of vital events
The World Wide Web offers Info on the dates of crucial marketplace events. Examples are economic information releases, FOMC announcements, and influential companies’ earnings reports. News traders will do well by knowing this activities calendar earlier.
News traders must chalk out a strategy
Investors need to plan a trading strategy to avoid making careless, hasty decisions. They should have planned entry and exit points.
News traders must try and not react automatically to market information
Investors must make sensible investment decisions on the basis of two factors. They are:
For this, they could act antagonistically sometimes. Experienced long-term investors vouch for this approach in equity investing.
Capping risk is vital
News traders should not take concentrated positions on stocks to profit. Anyway, there is always a chance of the trade going against them.
News traders should always try seeing the big picture. It could be that the general reaction of investors to the news is not what a trader expects. He may consider a dividend cut announcement to cause a sell-off. It could be that investors are supporting the company’s move as they believe that the company is making more investments in its business.