Big News, Big Moves: Should You Trade During Major Announcements?

Financial markets thrive on information, and few moments are as volatile as those surrounding major news announcements. Whether its central bank decisions, economic data releases, or geopolitical developments, such events can trigger extreme price swings within seconds. For traders, the temptation to capitalise on these moves is undeniable. But is it a wise strategy, or does it carry unnecessary risk?

Some traders see news-driven volatility as an opportunity. When significant announcements hit, liquidity surges, and price action accelerates, creating the potential for large gains in a short period. High-impact events such as interest rate decisions, non-farm payroll reports, or inflation data can send markets into a frenzy, often presenting clear directional trends.

For short-term traders, particularly those employing scalping or momentum strategies, these moments can be highly lucrative. If executed with precision, trading on news releases allows for quick entries and exits, capitalising on rapid price fluctuations. Moreover, for traders who have a deep understanding of fundamental analysis, interpreting economic data can provide an edge in predicting market direction.

Despite the allure of fast profits, trading during major announcements is fraught with risks. The biggest challenge is slippage, that is when price gaps occur so quickly that orders cannot be executed at the expected level. For traders using stop-losses, this can lead to worse-than-expected losses. Additionally, spreads can widen dramatically during high-impact news releases, increasing trading costs and making positions less profitable.

Another significant risk is market whipsawing, which is a phenomenon where prices spike in one direction before violently reversing. This is particularly common when market sentiment is mixed, or when the news is interpreted differently by different participants. Traders who enter positions too early, or without a clear risk management plan, can find themselves caught on the wrong side of a rapid move.

Understanding market expectations is crucial before trading major announcements. Markets move not only based on actual data but also on whether the news meets, exceeds, or falls short of expectations. Traders should familiarise themselves with consensus forecasts to anticipate potential market reactions.

Another critical consideration is liquidity. During major news releases, some assets may experience sharp liquidity drops, leading to erratic price movements. Trading highly liquid instruments, such as major currency pairs or blue-chip stocks, can help mitigate this risk and ensure smoother order execution.

Risk management tools are essential when trading in volatile conditions. To protect against excessive losses, traders should use stop-losses, but they must also be aware that these may not always execute at the intended levels due to slippage. Having a well-defined risk management plan can prevent devastating drawdowns.

Overleveraging can be extremely dangerous during news-driven volatility. The temptation to use high leverage in fast-moving markets can lead to significant losses if a trade goes against the trader. Maintaining disciplined position sizing and ensuring adequate risk control are key to longevity in trading.

Patience and confirmation can make a difference when trading news events. Rather than attempting to predict the immediate reaction to news, some traders prefer to wait for market direction to be confirmed before entering a trade. This approach reduces the risk of being caught in sudden reversals and provides a clearer picture of price action.

Trading during major news events is not for the faint-hearted. While the potential for large profits exists, so too does the risk of severe losses. Success requires not just market knowledge but also discipline, risk management, and the ability to act decisively under pressure.

For retail traders, it may be wiser to observe market reactions first rather than attempting to predict them. Those who do engage in news trading should approach it with caution, ensuring they have a clear strategy in place. After all, in the world of trading, survival is just as important as success.