News trading is possibly the most traditional form of day trading. This type of day trader doesn't pay much attention to stock price and volume charts. Instead, he waits for information that will drive prices.
This information may come in the form of a company announcement about earnings or new products; a general economic announcement about interest rates or unemployment; or just a lot of rumors about what may or may not be happening in a given industry.
Traders who do well with news trading usually have some understanding of the markets they’re working in. They’re not fundamental researchers, but they know enough to know what kind of news would be taken well by the markets and what would be taken poorly. They also have the ability to pay attention to a few different news sources simultaneously and the ability to place the order when the time comes.
The downside of news trading is that really good events may be few and far between; more often, the hype is already built into the price by the time you see it. Many news traders turn to range trading or scalping while they wait for something, anything, to create a little excitement.
Also, news trading is difficult to automate. You can't place a limit order to buy when a price level is hit; you have to wait until you see the news and then place the order yourself. Thus, news trading works well only for traders who can commit to placing the order.
