Implementing Strategies on the News – Advanced
Trading the Stock Market
When companies announce their earnings figures it has a big impact on each individual stock. When trading fundamentals it is important you know what to look out for and you can build strategies around that. For example when an earnings is announced and it has excelled its projected numbers the stock is like to rise on market opening. Now if its forecasts for the next year or so are also higher you will likely see the stock continue to rise for the foreseeable future so you could buy this stock and take a medium/short term gain. However if the numbers excelled the projected figures but the forecasts/outlook was lower you will likely to see the stock fall. Therefore the key is to not necessarily look for the actual figures today but to look at what the projected forecasts are and if that was anticipated or not. There are also lots of other research you can do on that individual stock to confirm your entry and back up your strategy for example looking at the Price/Earnings ratio’s, whether you think the stock is generally over priced, over bought or over sold. Do your research on that sector is technology the future? Is cyber security going to continue to have demand? I was an early investor in Netflix and that was purely on gut instinct because i liked the model and could see it had a lot of potential. A lot of critics were saying it was over priced at $40 and look it at now! I also built a day trading strategy on this individual stock, i noticed Netflix was very volatile and when the news was good it would rally for a while up to 10% and visa versa if the news was bad. So if it had an analyst upgrade for example i would buy the stock that day and would sometimes see a 3/4% gain in one day. Something to look out for! Analyst upgrades and downgrades can have a real impact on the stock in the short term especially if the stock is volatile and the upgrade or downgrade is a substantial change.
Trading the news Indices & Forex
As mentioned before we use forex factory to see key impact news. There’s certain news i personally look out for more than others, that over my experience trading has more consistency than the others. I will give you an insight into that particular news below and show you a trading diary i did to build up consistent strategies trading news.
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As you can see from the examples above we had two press conferences and monetary policy statements, one from the ECB with Draghi speaking and one from the Bank of Japan. In both press conferences quantitive easing (QE) was announced which means the government would print more money to help stabilise the economy. This causes the respective currency to weaken as its value becomes weaker due to more of that currency being available. As you can see in the above examples as soon as QE was announced both the euro fell and the JPY fell against all other currencies. QE is also seen to be bullish for the stock market as a weaker currency makes exporting a lot cheaper. So for exporting countries like Japan and China this is very bullish news hence why the Nikkei rose a substantial 8% when the news was announced creating great trading opportunities. Looking out for monetary policy statements and press conferences is very important, likewise if an increase in interest rates occur it will cause that currency to rise.
Other news such as Gross domestic product (GDP), Consumer Price Index, Unemployment Rate and Retail sales are all factors the monetary policy committee take into consideration to see where the economy is at and whether they need to increase or decrease interest rates accordingly. This is why when the news comes out we can trade the currencies accordingly, however we shouldn’t always trade every number, if the actual result is inline with forecasts you are more than likely to see volatility that can result in a loss. Therefore unexpected news where we see a substantial miss in forecast is the time to trade. Below is an example of this.Â
As you can see from this example the actual GDP figure that came out for Japans economy was a lot weaker than expected resulting in a large instant fall for the Nikkei, giving us a great trading opportunity to go short and making a good profit.