Avoid Chasing the News when Trading

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Video Transcription:

Hello traders. Welcome to the news trading course and the fourth module, “What Not To Do.” In this lesson, we’re going to talk about chasing the news, and chasing the news is a very basic concept but there’s a lot of rookie traders out there that do make this mistake and end up wiping out a big percentage of their account.

Chasing the News

Now, chasing the news is basically when traders don’t have a specific plan or system to trade and use, and they try to chase the move. This means that these traders are actually, well, they are obviously looking at the Economic Calendar and they are waiting for their release but they don’t understand what the release is about. They only know that news bring a lot of volume into the market and they can make a quick profit, or a big profit very quickly.

Now, not having a plan is very, well, it’s a very uncomfortable way of trading and it’s actually a losing proposition because what these traders do is that they wait for the initial move and then when the initial move happens, they jump in. But they jump in blindly without stops and they don’t know what they’re doing because they don’t even have targets, they are chasing the move, a move that already started.

Now, we are never going to do that, we already know, which news we are going to trade with which plans, but I’m going to show you what happens if you try to chase the news. Real news traders never do this because doing this is very close to burning money and this is actually true. So I’m going to show you an example. This is price action before the news release, okay? You understand that the range, well this might be, I thought it’d be strange, which is not very thin, but we are still in a range and we are expecting high volatility when the news comes. When the news comes, you can see that price moves all the way up here in a very strong move. The first candles are not strong enough or not as strong as the second candles, maybe because the news was released while these . . . Even though that the news was released while these down-trending was being tested, the breakout managed to bring a lot of buyers that picked to this point.

Now, people that chase the news are going to say, “Jesus, look at this move? This is a very strong move, so let’s jump in right here, and let’s wait for a continuation of this move.” Because what they don’t understand is that the initial buyers that broke with this heights and this trendline, are going to start taking profit right here, and maybe there’s a real level of resistance here that is going to make price drop like in this case, okay?

Now this, and another thing that you need to understand is that, when these traders that are chasing the move are buying, they are buying from the sellers that bought all the way down here. So while the, I’m sorry, they are buying from the sellers that bought all the way down here. They bought here, they sold here, so they are making money. While these buyers are making money, these guys are actually just buying them out of their trade, okay? And what happens when price comes all the way down here, they don’t know that price might reverse and come to test these heights or these levels of resistance. They don’t have a plan. They just see the price movement and they’re going to manually buy out of their position so they’re going to sell their short position, and here buyers are going to buy that long position and price is going to continue to the upside. So they don’t have a plan. They just blindly chase the trade and remember that, in this course, I taught you to always plan your trade and trade your plan according to the news that you are watching, so you are never going to chase the news, and if you just sat down in front of your computer and there’s a big event happening at the moment, just don’t trade it because you need to be prepared to take the trade and you need to know what you’re going to do ones volume comes into the market.

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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