News drives the markets. Positive, negative, or neutral press releases have a direct impact on the action and price of stocks in the short and long term.
Stocks (or any trading instrument) moving with catalyst significantly increases the chances of you seeing a strong trend.
Knowing how to properly identify which news pieces are important, and how to actually trade news events will give you a MAJOR edge in the markets.
Let’s dive in:
How Day Traders Use News To Their Advantage
As traders, price action is always king. We are technical traders, and the chart is always carries the most weight in our decision making. But if you really want to get those BIG moves on day trades or swing trades, you need to couple the technical pattern with some fundamental catalysts like news.
Trading off of news alone isn’t enough. We always need to overlay technical analysis patterns. But, as traders, combining a strong technical pattern with a strong news release in the direction of your thesis is what we want to be spotting. Those types of setups will give rise to BIG moves.
Whether that news is earnings related, industry related, or company related, knowing the sentiment of that particular press release and combining it with a strong technical backing is what you need to be aiming to do every day as a day trader.
A.I. Stocks & News – Example
A great recent example of how combining news and technicals is to look at a chart from $AI. Thanks to the increased hype and popularity of Artificial intelligence from Chat GBT, $AI has gone on a huge parabolic run to the upside.
But, recently as we see in this example, it has taken a huge hit thanks to a major hit piece a short selling firm released on it. This is an example of a negative news event.
On April 4, 2023, you can see in this hourly chart here the stock dropped significantly, thanks to this press release that was released before the opening bell.
Knowing that the stock has gone on a huge parabolic run recently, the industry is way over hyped, and that there is a negative news event that dropped this morning before the open, we can start to create a trading thesis to the downside thanks to the negative fundamental news catalyst.
As you can see here, we can lean into the idea that today may bring some strong selling pressure on the stock thanks to the news event, and can take a technical intraday short setup with more conviction, now knowing we have fundamentals and technicals aligning together in perfect harmony.
The reason why we overlay technical analysis with fundamental analysis is the fact that this chart easily could have reversed and went positive on the day. We never want to assume that just because there is a negative news event or article out on a stock that it will drop. It is important to know what the news is and have the overall idea in your mind that the sentiment is negative, but we want to actually enter when the technical patterns confirm its negativity or positivity like in the chart below. Kunal dives into more detail here for the exact strategies to use on this setup, and more about how to capitalize on these powerful opportunities:
Trading “Hot” Industries
A lot of industries like Artificial intelligence for example will become “hot”. Like recently, companies will try to release as many Press Releases that incorporate Artificial Intelligence just to get activity and buying power flowing through their stock. As traders and investors, you have to be aware of the hot “industry crazes” and short-term volatility increasing Press Releases these companies release. Never assume that the hot craze and increased activity will last forever. Use these strategies that we outline below to trade these types of news releases safely.
The Best Strategy For Trading News
The ORB (Opening Range Break) pattern is extremely powerful for trading news events to the upside or downside. We will continue breaking down this $AI example, as it perfectly depicts what an ORB setup is.
An Opening Range Break pattern is just as simple as it sounds… It is the break of the opening range. As you can see here on $AI, we had a drop in the stock on the first candle, followed by consolidation creating that opening range, followed by the break of the range to the downside which initiated the all day selloff.
We want to see a minimum of 3 consolidating bars after the stock opens, and then on the break break of those bars we enter.
On news plays like this that gap down, consolidate for 3 or more bars, and then break that consolidation, you also want to make sure your stop is above VWAP, giving the stock enough breathing room to develop into a big trade.
Options Strategies During News Events
Like we mentioned before, aligning technicals and fundamentals (news) like in this example can ignite some pretty large moves. Trading equities is great and can get you some great returns on these types of setups, but options can even bring even better returns.
Taking calls/puts that have a strike price being in the money or close to your entry after an Opening Range Breakout/Breakdown can bring you some great returns as well, as the premium prices accelerate. Check out the video above to learn the strategies in more detail!
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