News Trading: Strike While It's Hot

As a news trader, your information flow is your earning potential. Your skill as a news trader determines how much of that potential you can realize, but the most important thing is to position yourself to seize the opportunity. If you don’t get the news - or (potentially) worse, if you get the news late - you don’t even get the chance.

For this, I largely use two tools, Tree News and X. We’ll stick with X for this article though. I have a few hundred X accounts that I follow with notifications on, and I’m always scanning for potentially lucrative headlines. When I see one, I do a quick mental ‘checklist’ of sorts (though the longer I do this the more subconscious this checklist has become) and quickly decide to either long, short, or do nothing. There are a ton of different factors that make me decide which action to take. Long vs. short is usually pretty easy to figure out, but what is harder is knowing when to do nothing on seemingly ‘good’ or ‘bad’ news. Experience will improve your intuition.

When you start out, one of the hardest things to get the hang of is something that on the surface seems quite simple, digesting the news. Every headline or tweet you see, you must immediately think to yourself, ‘What do I long/what do I short’. You have to train your mind to jump to that right away otherwise it’s very easy to just read it and not fully digest the implications or even try to.

Tips:

• Find past headlines and look at what they did to the price of the relevant asset. You can use the ‘bar replay’ feature on TradingView to get an even better feel of how the market reacts to different types of news.

• Take notes of past news events, what they did to the price, how much, and how quickly.

  • Whenever there is a headline that affects many tickers, for example, a collapsing fund that’s holding a lot of altcoins, you’d want to short the least liquid alt that is affected.

  • When there is a broad crypto market catalyst, I like to use ETH as my directional instrument vs. BTC because of the increased size (and thus increased fees) you have to use on BTC to get the same expected returns as you would trading ETH. Alts can be useful for this as well since they tend to move even more violently, but you must be cautious as there may be catalysts currently influencing them that are unknown to you, causing them to behave in unexpected ways.

News trading is often a delicate balancing act of seeking more information vs. entering quickly. You don’t want to blindly ape into things without thinking it through a bit, but at the same time, spending minutes thinking through your decision before entering the trade because of a headline is just not feasible. This is where the checklist (and practice) comes in handy. You have to decide within less than two seconds typically; usually less than one for things with more eyes on them.

If you are late to the news by even a minute or two, just accept that you missed it and wait for the next. Never chase. The people chasing are the ones who pay my bills.

News trading, put simply, is just cause and effect, and the current price of a token is the sum of its history. When there is breaking news, something has just been added or subtracted.

For very obvious news trades, if the price isn't reacting right away, cut. For less obvious ones that require some critical thinking and/or anything past first-order logic, then you can typically wait a couple of minutes max, then cut if still nothing. For news that is tweeted out by people without many followers but that you are certain are good sources, you can hold a while longer, but if it goes against you, just cut anyways, the juice probably isn’t worth the squeeze. Don’t get stuck on the same chart. Your window of opportunity has closed.

Thankfully, for more complex things, everyone else takes longer to figure out the implications as well and is less likely to be botted – so you just have to be at the front of the pack, or you’ll wind up as exit liquidity.

The most important rule is...

If price isn’t reacting at all, or reacting the opposite way to how you think it should, close immediately and wait for the next headline. News trading has nothing to do with what you or I think about the news, it is only about what the market thinks. If the market disagrees with me, I immediately accept that it’s me who is wrong. Fighting the market only leads to destruction. Over time, you will get better at anticipating the market's reaction to different types of news, even when it differs from what you think ‘should’ happen.

Don’t be greedy, you’ll learn as you do this longer how much you can expect to get out of a single news trade based on what the news is/how bullish or bearish it is, but starting out, just watch the 1-minute chart and once it starts to lose momentum take profit. The vast majority of the time, I’m in and out in less than five minutes. You will often miss out on a few percent here and there, but there are always news trades to make money on, unless you blow yourself up… Be safe.

Keep in mind that it’s often a sort of “inorganic” move. Recognize whether the news is truly bullish in the immediate term or whether it’s just a headline that will pump the price but no one actually cares. Most news trades, even profitable ones, fall into the second category.

It’s simple once you understand the dynamics of it. If no one cares, yet it's pumping anyways, you’re just playing PvP with other news traders. Now you have a bunch of other news traders long or short on a coin they don’t care about. Then, at the first sign of weakness (typically just when momentum stalls/slows) cracks in resolve start forming and the move retraces.

It’s important to keep in mind that none of these are hard and fast rules

Although I’ve been trading full-time since May 2021, there is still much that I have to learn. Regardless, these methods and heuristics have been the key to my survival during this bear market (so far) and have led me to great success trading the news of the recent XRP ruling, the FTX collapse, as well as countless other market-moving events.

I’m constantly evolving my process, and whenever something plays out unexpectedly, I try to drill down to figure out exactly why. Sometimes though, there is no easy answer, and it’s important to accept that occasionally you will do everything ‘right’ and still lose.

I’d like to tell you that this article will save you from making all the mistakes I have, but unfortunately, it probably won’t, so at the very least, I hope you can have a bit of insight into the mindset and process of news trading.

If you have any questions, feel free to ask me on Twitter (where I also tweet most of my trades in real-time) @TheCryptoNexus

You can also follow me on Medium where I may or may not write more articles in the future. medium.com/@TheCryptoNexus