Trading the headlines is often seen as a great way to get high returns and improve long-term portfolios. But, is it really worth the risk?

News and data releases are probably the top price drivers in the financial market. This is particularly visible in the forex market, which is highly affected by not only US economic data but also news from all around the world. Some forex traders see this as an opportunity to grab higher returns, while others prefer to do the complete opposite and stay away from the market due to the unpredictable, volatile condition of the prices.

Trading the headlines

In reality, the vast majority of traders lose when they trade the headlines, especially when market makers, institutions, and other big players are involved. The market is clearly unsafe, yet many traders still find it attractive. So, the big question is, is headlines trading worth it?


What You Should Know About Trading the Headlines

Whether you like it or not, the importance of news in financial markets cannot be overstated. The market can be heavily reactive to news developments, especially during the moment leading up to the announcement and the moment right after the announcement. This causes the market to be highly volatile and prices to move very quickly, which can be both good and bad for traders.

One thing to note is that during news announcements, usually there is a lot of excitement, anticipation, and anxiety. This can add an emotional factor to trading and can be harmful to those who can't control their emotions. They might forget to put safety nets like stop losses and end up losing a lot without realizing what's really happening. Others might just gamble their way in and join the herd without any plan at all. These are the problems that not all traders can handle.

Some professional traders can do well during news releases simply because they know what they're doing. They have a solid strategy and are able to make an informed assumption about the potential direction of the market and the impact of the news. In other words, they know the right time to get in and when to get out. They may have spent years to finally develop such skills in hectic market action.


Types of Headlines to Look Out For

Breaking news happens all the time. Every day, there are hundreds of new headlines, data releases, and blog posts displayed all over the internet. However, not all of them are significant enough to affect the market greatly. This is why you need to be able to separate the news that actually matters from the rest. In the forex market, for instance, important news releases may only appear once or twice a week. So, in order to make successful trades, you should know what news to look forward to.

Essentially, there are two types of news that may affect the market:


Unexpected News

This type refers to sudden or unforeseen announcements, such as natural disasters, pandemics, terrorist attacks, or a certain economic development. For instance, the devastating earthquake that happened in Japan a while ago caused the USD/JPY price to shoot up instantly after the news broke. Such news is certainly unpredictable, but it can be a huge advantage if you can respond to it well. The key is to understand the context of the phenomena and figure out what the market is focusing on.


Recurring News

On the other side of the coin, there are announcements that occur regularly, such as quarterly reports, economic statistics releases, job reports, or bank centrals' policy announcements. These days you can easily check all upcoming events by looking at an economic calendar.


The Bottom Line

At the end of the day, we can conclude that big economic news may carry different meanings and profitability to each trader. It is possible to make successful trades during headlines, but it's not necessarily easy to do so, even for professionals. Aside from having a good strategy, the most important skill to have is to know which news releases you should trade. This means you need to be able to find key events that have a high chance to impact the markets.

Researching daily news events might take time, but there are ways to get the data efficiently. For example, you can take advantage of brokers' features that are specially provided to keep traders updated with the news.