News events are landmines. NFP, CPI, Fed announcements, earnings reports - these scheduled explosions can wipe out a week's profits in seconds or create opportunities that only appear a few times per month.
Most traders get it wrong. They either avoid news entirely (missing opportunity) or trade directly into it (gambling). The right approach is more nuanced.
Here's how to navigate news without letting it destroy your account.
Understanding News Impact Tiers
Not all news is created equal. Think of events in three tiers:
Tier 1: Market-Moving Events
- Federal Reserve rate decisions and statements
- Non-Farm Payrolls (NFP)
- CPI / Inflation data
- Major geopolitical events
- Major earnings (FAANG, market leaders)
These move markets aggressively. Spreads widen, slippage increases, and price can gap through your stop in milliseconds.
Tier 2: Moderate Impact
- GDP data
- Retail sales
- Housing data
- Manufacturing indices
- Secondary earnings reports
These create volatility but usually within manageable ranges. Still require caution.
Tier 3: Low Impact
- Minor economic reports
- Fed speaker appearances
- Small cap earnings
These rarely disrupt normal trading unless they surprise significantly.
The Pre-News Trap
The most dangerous period isn't during the news - it's the hour before.
Here's what happens: Markets consolidate as traders reduce exposure. Volume drops. Price action becomes choppy and unreliable. Setups that look valid become traps because normal market behavior is suspended.
The smart play: Close or reduce positions before Tier 1 events. Don't initiate new trades within 30-60 minutes of major releases.
The opportunity cost of missing one trade is nothing compared to the cost of getting caught on the wrong side of a 2% move in 30 seconds.
During the Release: Stay Flat or Accept Chaos
Trading directly into news releases is not trading - it's gambling. Here's why:
- Spreads explode: Your normal 1-pip spread becomes 10-20 pips
- Slippage is guaranteed: Your stop at 50 might fill at 80
- Price spikes both ways: That "obvious" direction often reverses violently
- Algorithms dominate: They react in microseconds - you can't compete
Some traders specialize in news trading with specific strategies, position sizing, and acceptance of wild outcomes. Unless you're one of them, stay flat.
The Post-News Window
The real opportunity comes after the initial spike. Here's the timeline:
0-5 minutes post-release: Pure chaos. Initial reaction, often wrong. Avoid.
5-15 minutes: Market digests the data. Often sees a reversal of the initial move. Dangerous but tradeable for experienced traders.
15-60 minutes: True direction emerges. This is where retail traders can participate. Look for:
- Price accepting new levels (not immediately rejecting)
- Volume confirming direction
- Failed reversals of the initial move
1-4 hours: Extended moves develop. If the news was significant enough to change the narrative, the move often continues throughout the session.
Position Management Around News
What if you're already in a trade when news hits? You have three options:
Option 1: Close before the event
- Best for: Tier 1 events, positions near breakeven, trades not yet at target
- Benefit: Eliminates risk completely
- Cost: Might miss a favorable move
Option 2: Reduce size
- Best for: Tier 2 events, positions already in profit
- Benefit: Reduces risk while maintaining exposure
- Cost: Reduced upside if the move favors you
Option 3: Widen stops
- Best for: Swing trades with strong conviction and room to breathe
- Benefit: Stays in the trade through volatility
- Cost: Larger potential loss if stopped out
Never do nothing. Having a plan beats hoping for the best.
Building a News Calendar Routine
Every trading day should start with a news check:
- Check the economic calendar: Know what's releasing and when
- Identify Tier 1 events: Mark them on your chart or set alerts
- Plan around them: Decide in advance whether you'll trade, reduce, or stay flat
- Check earnings: Know if any stocks you trade have reports
Free resources like ForexFactory, Investing.com, and TradingView's economic calendar are essential tools.
Earnings: A Special Case
Earnings reports deserve special attention because:
- They happen outside market hours (can't react in real-time)
- Gaps are common and can skip your stop entirely
- The market reaction often differs from the actual results
Before earnings: Don't hold positions unless you're specifically betting on the report. If you must hold, accept that your stop is essentially meaningless - the gap will be what it will be.
After earnings: Wait for the opening range to establish. Let the first 15-30 minutes reveal direction before considering entry. The initial spike is frequently the wrong signal.
When News Creates Opportunity
News isn't only danger - it's also opportunity when:
- The reaction confirms your bias: You were already bullish and the data supports it
- Overreaction creates value: Market panics on minor deviation from expectations
- Key levels get tested: News-driven spikes to major support/resistance often reverse
- Trends accelerate: News that confirms existing trends can create extended moves
The key is patience. Wait for the chaos to settle. Let others panic-trade. Enter when the picture becomes clearer.
The Bottom Line
News events require respect, not fear. The approach is simple:
- Know what's coming (check the calendar daily)
- Reduce or close positions before major events
- Stay flat during the release
- Wait for post-release clarity before entering
- Never hold through events you don't understand
The traders who survive long-term are not the ones who catch every news spike. They're the ones who protect their capital when uncertainty is highest and deploy it when the picture becomes clear.
News moves markets - but it doesn't have to move your account in the wrong direction.
Pentarch's cycle analysis helps you identify whether market structure supports a move - news or no news. Make informed decisions about when to engage.
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