The need for speed is a phrase that comes up frequently among those swing and day traders who use the news wires to identify potential trades. The news wires are constantly putting forth new stories containing information that can affect the value of a stock. How the trader interprets this information will determine the position he decides to take, if any.
There are different ways to play the news, especially if news is expected, such as
earnings. Earnings are generally released quarterly and can cause some increased volatility in a stock in the moments immediately following the earnings news. If the earnings are released after market hours there can be significant price gaps either to the up or downside depending on what the street was expecting. When news such as earnings are released the trader has known when it will be coming for sometime and can do his or her due diligence to determine what they may do when the exact information is known.
This is important because quite often a stock may have positive earnings or are ahead of last years numbers for that period, but the street was expecting better; this can cause negative sentiment and send that stock into a tailspin.
You hear the phrases “The Street”, “Sentiment” or “Tone of the Market” and to make a long drawn out explanation short, it just means what those involved in the daily trading of stocks, bonds and derivatives are feeling that day about the overall market or sectors of the markets. Negative sentiment usually signifies “the street” is bearish on something and positive sentiment signifies Bullish. Earnings and certain reports are scheduled for release but many news items that affect the direction of the market or a particular issue are unplanned and traders will have to identify if there are factors that will drive value up or down. Getting in early when playing the news is vital, as many newer traders tend to take positions when seasoned traders are exiting.
To play the news, whether scheduled or unexpected a trader needs to be reactive, he or she needs to see the news and then process that information quickly to determine whether the anticipated move will be up or down. Scheduled news such as earnings or research releases can move the value quickly but are usually more indicative of longer-term thinking.
Investors might use news to confirm their own feelings or research about a stock or sector and attempt to take advantage of a longer time horizon move, perhaps months or longer whereas day traders are looking for that initial reaction and grab profit from possibly entering and exiting several times as the moves in an issue continually attempt to find equilibrium.