Integrating News Events into a Trading Plan

Every trader has experienced that feeling: you spot a technical setup, you feel great, and then boom, A breaking news release shocks the market and flips your trade upside down in a second. These events can remind us that a market does not only respond to charts, but also to breaking news.

The traders that continue to thrive are the ones that do not think news is a random occurrence, disrupting their trade plan. Instead, these traders view news as a part of their overall trade plan. By using news events as part of your strategy, you can establish a new structure to prevent chaos and stay one step ahead of the other traders.

The Importance of News in Trading

News can be considered the lifeblood of the financial market. News releases occur daily: interest rate decisions, inflation, employment reports and geopolitical news, etc. These events can shape expectations and cause price movements. While patterns through technical analysis can assist traders in finding potential entry points, ignoring news releases can put traders in a position of unnecessary risk.

To understand why news is essential to trading is to understand that markets do not just respond to news; markets react to news relative to expectations. A number that meets expectations may have little impact on the market, whereas a number that deviates from expectations can cause extreme volatility. This is the basis for blending news into your trading strategy.

Different Types of News Events that Impact the Markets

Not all news is created equally. To be effective in blending news into your trading, you will want to focus on the events most likely to move prices.

• Economic Data Releases: Non-Farm Payrolls, CPI, GDP, and retail sales are known market movers when they are scheduled on the economic calendar.• Central Banks Announcements: Interest rate changes and statements from the Fed, ECB, or BoE can often create tremendous volatility.

• Geopolitical Developments: Elections, wars, trade agreements, and sanctions can change sentiment fast.

• Unforeseen Events: Events such as a natural disaster, pandemic, and political resignation can create sudden and unpredictable moves.

By separating high and low-impact news, traders can select which events are worth paying close attention to in their plans.

Forming Awareness with the Economic Calendar

A good first step is to have an economic calendar handy. An economic calendar visualizes scheduled releases, market forecasts, and what is expected. Utilizing the calendar daily to check economic news allows you to:

1. Avoid being caught off guard by sudden, significant announcements.

2. Plan around potential volatile windows.

3. Build positions around events that most matter to your selected markets.

This proactive habit can ease surprises and keep you ahead of the market narrative.

Building a Premise Bias

The attempt to integrate news into your planning is not just a timing mechanism, but an effort to provide an expectation. Traders will often build a premise bias towards an event based on fundamentals, technicals, and sentiment.

For example, if inflation has reached a plateau and the Central Bank has hinted about rate-raising measures, your premise bias could go bullish on the currency before the CPI economic release. The CPI number could be neutral, but if the trend sentiment is already bullish, it keeps the trend moving.

This bias doesn't ensure a specific outcome, but it will dictate your own decision-making and keep the random trade away. 

Potential Trades Around Economic News Events

There are numerous ways a trader can integrate news into their plan: Pre-News Positioning.

For sure, in higher conviction scenarios, traders may enter a position before the release. This is riskier, but if the news confirms your expectation, it can lead to good profits.

2. Post-News Confirmation

Others wait for the reaction and then trade along the already confirmed direction. This does eliminate the chance for a whipsaw, but generally means entering later.

3. Just Stay Away From The News

Some traders decide they will stay away completely during news events. They let the volatility settle and will re-enter when time allows. For traders with a low-risk attitude, this can be a wise decision.

4. Longer-Term Adjustments

Fundamental traders use news to adjust their long-term view. For example, a series of stronger jobs reports may well adjust their long-term bias on a currency for weeks or months into the future.

Risk Management During News

Even the best analysis cannot eliminate risk. That is why good risk management is non-negotiable to have in place during news events.

• Reduce Size of Positions: Smaller trades risk less exposure in case of a volatility spike against you.

• Use Wider Stops: Give trades room to breathe, but always size positions accordingly relative to the wider stop price.

• Price Slippage: Prices may not fill at the price you wanted due to rapid movement.

• Don't Overleverage: High leverage can increase both potential gains and losses, especially in volatile conditions.

Surviving the news is about protecting your account first, then chasing the profits.

The Significance of Technical Analysis with News

Some traders wrongly believe that technical and fundamental analysis are unrelated concepts. Beyond trading individual stocks, they are most effective when used together.

• Support and Resistance: News normally acts as a trigger for clean breaks beyond support or resistance levels.

• Chart Patterns: A chart pattern breaking out with a strong fundamental release matters more.

• Momentum Indicators: Indicators such as RSI or MACT prove whether a news-based move will be sustained.

When combining what charts show with the awareness of news, you are filtering out noise and increasing the quality of trades.

Mistakes to Avoid

Even the best plan goes out the window for many traders as they try to incorporate news into their trading. Avoid:

• Reacting to every headline: Not every news event is worth trading on. Stick to real, proven market catalysts.

• Confusing a bias with certainty: A bias is just probability, not certainty. Remain flexible.

• Chasing moves: Waiting in anticipation and jumping in later to make a move usually leads to losses for your account.

• Losing sight of the big picture: A single news event typically does not change long-term fundamentals on its own.

Keeping these traps in mind helps you stay congruent with your trading plan and your style.

Example - Incorporating News Exposure into a Plan

Suppose the Federal Reserve is about to announce a decision regarding interest rates. Your plan could potentially look like:

• Looking at the economic calendar for the week before.

• Developing a bias with the most recent employment and inflation information.

• Deciding whether to take a position before or after.

• Setting your position sizes/stops based on potential volatility.

• Reviewing your results after the event and adjusting for next time.

Through this process, you will be prepared to avoid emotional reactions and build consistency over time.

Conclusion

News events should not be viewed as negative; instead, they are opportunities to be managed. By incorporating measures such as economic releases, headlines, etc., you build the foundation of your trading plan to balance fundamentals and technicals, proposal and execution.

The key is balance: be aware without going to extremes, build bias but don't be rigid, and manage risk in the same way you manage entries. The market will always react to news - whether you planned for it or not, you can only put yourself in a position to benefit and view volatility as an opportunity, rather than a setback.

At the end of the day, success in trading is not about predicting every headline - it is about being prepared when the news comes.