c07 JWBT016-Busby October 1, 2008 21:9 Printer: TBD
News Pays 97you need to know the dangers involved. You also need to have the skills
required to exit the trade quickly should such a move be necessary. For
all of these reasons, only experienced traders who possess the requi-
site skills to swim in these shark-infested waters should attempt to trade
the news.PEARL 11
The night of the presidential election offers great trading opportunities after
7:00PMcentral time.Breaking News
In addition to regularly scheduled economic reports, other news alters
the financial outlook and reverberates through Wall Street. Some break-
ing news events that can make or break a trade include a terrorist attack,
a federal investigation of a major corporation, and a good or bad but unex-
pected news announcement from a blue-chip firm. These items and many
more like them have the ability to move prices.
Due to the nature of life, it is impossible to predict or prepare for such
events. Recent examples of market-moving breaking news include the un-
expected Fed rate cut following the Martin Luther King holiday. The mar-
ket rallied off the lows. Another example is the Bear Stearns Corporation
and its near-bankruptcy scare. The news took the markets by surprise, and
traders responded by selling off.
The best action you can take to protect your money from breaking
news is to always use a protective stop when trading. That is, when an or-
der is executed, put in an order to remove you from the market should the
trade go significantly against your position. There are a number of strate-
gies for selecting the exact place to put a stop/loss order, but I will not
discuss them all here. The big idea is to identify the maximum loss that you
are willing to take on the trade or the price point where you know you are
wrong on the trade and put the stop/loss order there. Even in the face of
unexpected news that moves prices against your trade, if the markets re-
main calm and orderly, you should be removed from the action with a small
loss instead of a big one. Therefore, ALWAYS USE STOP/LOSS ORDERS.
Nothing moves the financial markets like news. Learn to use news to make
money.PEARL 12Markets respect news. You should, too.