Common Mistakes When Trading the News

7 min read

Many of the losses associated with news trading come from a small set of recurring mistakes, most of which are avoidable with a bit of preparation.

None of these mistakes require a special forecasting skill to avoid - they're mostly about discipline, and about resisting the pull of the fastest, most chaotic moments right after a headline crosses.

Reacting to the headline number alone

The first number that crosses the wire is often not the full picture - revisions to prior data, or details buried further in the report, can change the market's reaction within minutes. Reacting to the first number alone, without waiting for the fuller picture, is a common source of being caught on the wrong side of a reversal.

This mistake is especially costly around releases with several important sub-components, where the headline figure can look strong or weak while the details tell a meaningfully different story.

• Headline-only reaction: Acting on the first number before the fuller report is digested.
• Revisions: Changes to prior data can shift the market's reaction after the initial print.
• Sub-component detail: Details within a report can tell a different story than the headline alone.

Ignoring position size going into the event

Carrying a normal-sized position into an event known for outsized volatility, without adjusting for that added risk, is one of the most common and most avoidable mistakes.

This mistake is rarely about being wrong on direction - it's about being right-sized for a level of volatility that turned out to be far larger than a normal trading session.

• Unadjusted sizing: Keeping a normal position size heading into a known high-volatility event.
• Predictable risk: The added volatility around scheduled news is foreseeable, not a surprise.
• Easily avoided: A simple size reduction beforehand addresses most of this risk.

Chasing the move after it's already happened

Entering a position after a large move has already occurred, in the hope that it continues, often means taking on the risk of a reversal without having captured any of the original opportunity. Waiting for a clear, lower-risk setup after the initial volatility settles is often a more disciplined approach.

Chasing is particularly risky right after news, since the whipsaw pattern common to these events means the move being chased has a real chance of reversing shortly after the entry is made.

• Chasing: Entering after a large move in the hope it continues, without the original edge.
• Reversal exposure: A chased entry carries the full risk of a whipsaw reversal.
• Patience pays: Waiting for volatility to settle often produces a clearer, lower-risk setup.