Strategy – Following news events
While following the news is one of the most basic strategies, it can make you good profits. It is easier than performing technical analysis, but it requires you to read the news and stay in the loop all day, every day.
Online news is only the start. You must pick up newspapers, tune into news stations, and leverage as many other sources of information as you can. The idea here is to understand the asset as deeply as possible before evaluating whether its price will rise or fall. We recommend using the “economic calendar” where are daily news and events published.
You also need to reflect upon human behavior. A piece of news you find positive may not be seen as great news by the rest of the market.
One of the drawbacks of using the news to make trading decisions is that you cannot tell how far up or down the price will go and how long the price movement will last because of a particular event.
That being said, there are some things you can do to increase your chances of making a profit:
- Leverage the breakout: A breakout is a short window between the news release and its impact on the market. It can last for a few seconds or go on for a few minutes. In this strategy, you want to bet big since there are significant price movements after a breakout. Using high/low options is the right way to go.
- Employ boundary options: If you’re sure that an asset’s price will move but don’t know in which direction, estimate how far up or down the price could go, and use a boundary option. This way, regardless of if the news is positive or negative, you will make a profit.
How to apply
One of the best ways of using the news to make a profit is to follow tech companies and find out when they’re making their next announcement.
If you find out they will be unveiling a new product, you can buy options and wait for your profits to roll in when everyone loves the new product.
