I had written a fairly lengthy response to this one last night but I wanted to see if anyone else had any thoughts before I posted it. To make sure I don't forget I am going to go ahead, but please feel free to continue the discussion if there are other opinions, comments or questions here.

I agree that there is generally a snobbish attitude towards news trading, and I think there are a couple of reasons for this. Most of the the biggest and quickest moves in the market, as I am sure everyone is already aware, are around news events. Generally, from my experience, inexperienced traders who think of trading as a way to make fast money without having to do much work, are attracted to the opportunities that offer the biggest potential return, and have little regard for anything else.

This is in contrast to experienced traders who, from my experience, are attracted to the opportunities which also offer the biggest potential return, but do so with the least amount of risk. So, although I am sure there are exceptions to this, generally I think when people hear someone talk about news trading, they automatically assume that person is new to the market.

Below are some thoughts on why I personally stay away from trying to trade the initial market reaction when news is released, for anyone who is interested in my thought process here:

When the market makes a big move after a news event, it does not normally do so in an orderly manner. What I mean by this, is that if the EUR/USD is trading at 1.5600 before a news announcement, and the news announcement comes in off estimates and causes the pair to jump up to 1.5650, normally there is not an opportunity to get into the market until 1.5650.

This is a problem firstly because the first price the trader is able to get, is the price after the initial move has already been made (1.5650 in the above example). Second, and more importantly, if the trader takes the wrong side of the trade into the news event, and has his or her stop in between where the market stood before the news event, and the first price immediately after the news is released, then the stop is executed not at their stop level, but at the first available price.

Using the example above, this would mean that if I went sold short going into the news event at 1.5600, and put my stop to take my loss at 1.5620, my trade would be closed not at my stop level of 1.5620, but at the first available price of 1.5650. This aspect of trading the news is perhaps the most dangerous, as this means there is no way for the traders to determine what the potential risk is on the trade.

Lastly here, perhaps no where is the individual trader at a larger disadvantage to larger traders, then when trying to jump on the initial move after a news event. The two things that matter most here are the speed with which the trader gets the news, and the speed with which the trader's platform can execute a trade.

Institutions spend thousands of dollars every month for Bloomberg and Reuters terminals, which are standalone computers that run on a private network, which is much faster than the internet. This means they get the news first, so by the time most individual trader's news feeds report the news, or they hear it on CNBC, the move has already happened. Secondly here, institutions who count speed of execution as one of their edges, spend millions of dollars on infrastructure to make sure that they are, and remain, the fastest from a trade execution standpoint as well.

These factors make the risk associated with trading a news event too great for the potential reward in my opinion.

Hope that helps. If there are any other comments, questions, or differing opinions on this one feel free to hit the reply button and join the discussion as always.

Best Regards,
Dave

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Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.