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Trading Around the News

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Trading around the news: Is it profitable or not?

Picture the scene, busy looking trader checking out multiple screens with flickering colours emanating off spasmodic price movements, with CNBC or Bloomberg television in the background setting the mood for the upcoming frenzy of trading activity to follow a major news release.

This is the life of a news trader, we all know people who trade like this and while the above description might be a more dramatic description the truth of the matter is we all trade like this to some degree. For example when I know the Fed is going to release their minutes later in the day or tomorrow I may think they are going to be dovish and decide to put a trade on the dollar, this is a simple example of being a news trader.

If this is such a common trading activity wouldn’t you like to know if it is profitable or not?

Analysis of some high-impact news

Our analysis starts with categorising what is a news event. We used the News Calendar as provided by www.dailyfx.com and only analyse the events surrounding what they classify as HIGH importance.

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For the analysis any trade opened during the week before the news event and closed anytime from 1 second to 7 days after the news event is considered a news trade. So let us take a look at the results.

From a database we examined 311,166 trades 16,747 of these trades were classified as news trades.

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  • We see that the return on investment (ROI) is positive for non-news traders and more than 5x worse for news traders
  • The volatility of the trading around news is also much higher

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For those who like to look at a density plot diagram you can see how the trading around the news histograms have much heavier tails which represents the higher volatility described above.

Our conclusion based on the sample examined, is that trading around the news is Not Profitable and a Bad idea.

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