In part one in our series of learning how to trade market moving news, we learned what type of news can move the market. We shared why it was important to learn how to analyze news releases. To review – News Overrides Everything (Technical, Fundamentals, etc.) News has the ability to change the sentiment of your stock immediately. We also learned several website where we can find the news.
Now let’s look at how to gauge the market’s sentiment regarding the news release. All news releases are different. Even the same report offering the same numbers back to back can bring about different reaction from the traders. Some reports offer no surprise and therefore no movement. While other reports have unexpected data and will produce a strong move. Although we have two different potential reactions to news releases, we have a common theme. The theme of the 3 R’s: Release, Reaction and Retracement. The news happens and then the market has the reaction. As a trader, you want to ride the momentum of the crowd.
This may be surprising coming from a strong advocate for technical analysis; however, I recommend that you don’t get initially caught up in the technicals. The key is to look at the pattern. Allow the market to demonstrate where sentiment is at. Before the news, the market may hesitate and form a consolidation pattern. When the news comes out, the let the market react. If there is a surprise, the movement will be strong. When the results are not surprising, usually the move may be very small.
Try and establish who is in control: buyers vs. sellers. Ask yourself: