Trading the news – preparation is key

Unlike technical analysis, which can be largely self-taught and easier to understand given the fixed nature of historical prices, learning how to interpret the fundamentals can be a complex task. It is this very reason that there is no set guide as to learn how to trade the news as the world is constantly changing and thus so to does the impact information has on the market place.

On our career programme covering fundamental events day-to-day never stops as it is these events, whether economic data, central speakers, or political events that drive market direction short-term and consequently lead Central Banks to alter policy going forward.

In this blog I’ll aim to outline a few basic concepts.

Technical vs fundamental analysis – This is a question I get with nearly every new group given many may already have some competency in technical analysis. The answer here is there is no magic formulae but what I can say is that in all my years dealing with institutional clients the technical analyst teams always, without fail, had a solid understanding of global macro and central bank policies as to better understand market direction and also risks associated to their technical outlook. As some of you may have already found fundamental events can create extreme levels of volatility and when trading short-term strategies it is essential to be aware of calendar events that could disrupt your trading strategy. In summary, find what mix works for you and importantly makes you trade with confidence, but even if you are heavily basing your investment decisions on technical analysis then an appreciation and awareness of the fundamentals is vital to long-term success.

Preparation – This was the first lesson that was drummed into me back in 2006 when I started in the financial markets. My boss said to me this job can be as easy or as hard as you want to make it, suggesting that with thorough preparation you are in a much better mental state to provide not only timely analysis but importantly to remain in control with your decision making when the pressure is on. Studying the economic calendar in advance and identifying key events that could create market movement is critical to this process and something I get your new traders to do on a daily basis with our guidance as to how we make a decision on what is and isn’t important to that trading session in question.

Thinking laterally – Many of the new traders I meet are sometimes struck by the level of information professional traders digest on a daily basis, which can often seem like a daunting task when you’re starting out. However, it is this underlying understanding of how markets function, what drives central bank decision making, how markets are positioned and lots of other factors that all come together to better understand why the markets move the way they do. Unfortunately there are no short cuts here and hence the reason why most retail traders struggle in this area. As such, we place great emphasis on getting you up to speed on the key competences and how to break down the expansive world of information into something much more actionable through assigning a hierarchy to on-going macro themes.

Technology – This is key, as the advancement in this area has meet that the market is more reactive to news and rumours than at any time before. In order to stay on top of this information flow and to supplement traditional news channels like Bloomberg and Reuters we also use Twitter extensively. Although many may not be familiar with this system it can provide a substantial ‘edge’ as to ascertain news quicker in a world where every second can make a monumental difference to execution.

I hope you found some of these concepts interesting and this is just the tip of the iceberg of what we would cover on our programme. You can watch my daily market briefing’s HERE and I look forward to meeting you.