My news trading strategy: How I trade the news with fundamental analysis

Are you leveraging market-moving news events to your advantage? News trading can be a highly effective strategy for capturing volatility and taking advantage of rapid price movements. In this article, trading expert Stanislav Bernukhov shares insights, as well as pros and cons, on how to trade the news using fundamental analysis while managing risks effectively.

If you have some experience in the financial markets, you’ve likely noticed how prices react dramatically after major news releases. These movements create both opportunities and risks. You may have seen viral TikTok videos of traders counting down "5... 4... 3... 2... 1" before an economic announcement, only to watch the market make a sudden move. However, real professional trading is not about gambling on random price swings—it’s about strategy, analysis, and risk management.

In this article, I’ll break down different approaches to news trading, helping you understand how to navigate market volatility, minimize unnecessary risks, and capitalize on high-impact events to your advantage.

Content

1. What is news trading?
2. Setting up a news trading strategy
3. How to track and monitor the news?
4. How do news publications affect the markets?
5. My two top news trading strategies
6. Pros and cons of a news trading strategy
7. Key takeaways
8. Final thoughts

What is news trading?

News trading is a strategy where traders base their market decisions on economic data releases, corporate earnings reports, and other significant events. This approach aims to capitalize on the volatility that follows major news reports and announcements as financial markets react swiftly to new information.

Why does news matter for the markets, and why does volatility increase?

Big financial institutions usually don’t make major decisions until they have studied key economic data releases, as they rely on fundamental information rather than technical.

That’s why financial markets tend to move quietly ahead of important news releases and trim volatility. After news publications, volatility increases immediately, and spreads may widen as well. That happens due to lower-than-normal liquidity—market makers tend to widen spreads to mitigate the potential harm from big volatility spikes. This happens in all markets, including centralized exchanges.

Setting up a news trading strategy

A well-structured news trading strategy requires a solid understanding of market fundamentals, economic indicators, and risk management. Traders must be prepared to react quickly to breaking news while ensuring they do not expose themselves to unnecessary risks. The strategy can be broken down into several key steps:

Key steps to develop a news trading strategy

• Identify relevant news sources: Use economic calendars, government websites, and financial news platforms to stay updated on important announcements.
• Understand market expectations: Compare forecasted data with actual results to predict potential market reactions.
• Choose the right assets: Focus on currency pairs, commodities, or stocks most affected by the news release.
• Prepare a risk management plan: Set stop-loss levels and manage trade sizes to mitigate potential losses from sudden volatility.
• Decide on a trading approach: Choose between pre-news trading (anticipating market moves) or post-news trading (reacting to market movements after release).
• Monitor market conditions: Track liquidity, volatility, and overall sentiment to refine strategy execution.

How to track and monitor the news?

Traders typically rely on an economic calendar or visit the official websites of relevant government agencies to stay informed about scheduled publications. For example, you can monitor the economic calendar here.

For simplicity, we will focus on news related to the US dollar, but if you trade other currencies or assets, you should track corresponding news releases. Since most instruments are traded against the US dollar, starting your analysis with it is crucial.

Important publications usually include:

• Employment statistics (e.g., Non-Farm Payrolls, Unemployment Rate, etc.)
• Inflation data (e.g., CPI, PPI, PCE)
• Interest rate decisions and central bank speeches.

How do news publications affect the markets?

There are several ways news releases influence market movements. For example, when bad news comes in worse than expected, fund managers may start reducing their trading positions in anticipation of increased volatility. Alternatively, they may shift capital into the US dollar if they expect government bond yields to rise. Since market reactions can be complex, we won’t dive too deep into this topic here.

The general observation about news-based trading is:

• If employment or inflation figures for the US exceed expectations, the US dollar tends to strengthen. This is because traders anticipate that interest rates will remain high for a longer period, or may even increase, which drives demand for the dollar.
• A weaker-than-expected report, such as lower job growth or declining inflation, often leads to a weaker US dollar as traders foresee a more dovish monetary policy.

Here’s an example from February 2025:

The retail sales figure for January in the US was scheduled for release on Friday, 14 February. The consensus forecast for this figure was -0.1%.

However, the actual release was worse than expected at -0.9%, signaling a slowdown in economic activity. Since other economic indicators remained strong (employment data for January was robust), this report did not significantly impact stock prices. However, both the US dollar and gold declined in response to the news.

Now, let’s explore major news trading strategies.

First, traders can develop a directional bias and take a position before the news release. Let’s examine this strategy further.

My two top news trading strategies

Pre-news trading (anticipatory strategy)

At first glance, this strategy may seem straightforward, but predicting market behavior ahead of a news release is far from simple. Market reactions can be highly unpredictable and vary significantly depending on different circumstances.

The goal of pre-news trading is to build a directional bias and establish a position before the news release. While this carries inherent risk, a well-executed approach allows traders to capture a sharp price movement in the anticipated direction.

How do we build a direction bias?

There are multiple ways to determine market direction, but based on experience, the most effective method is to track key fundamentals such as national bond yields and interest rate probabilities.

This leads us to the concept of market sentiment. Market sentiment reflects the collective attitude of traders and investors toward risk. When risk appetite is high, they may ignore negative or neutral data. Conversely, even good news can be dismissed in favor of selling pressure in a bearish market.

Understanding market sentiment is a skill that requires experience, as multiple factors influence price action. However, some key indicators can help traders gauge the potential direction of the market.

There are two primary market sentiment states: risk-on and risk-off.

• Risk-on: Investors favor buying stocks and cryptocurrencies while selling US dollars (or at least not actively buying). During this period, optimism prevails, and gold may appreciate due to various factors such as geopolitical influences.
• Risk-off: Investors prefer holding cash and safer assets. This typically occurs during economic downturns, recession fears, heightened geopolitical tensions, or other uncertainties where fear overshadows greed.

Indicators of a risk-on regime

• Declining US 30-year bond yields (suggesting potential monetary easing).
• Gradual decreases in expected interest rates (tracked through tools like CME Group’s FedWatch).

Note: In a risk-off environment, the opposite occurs—yields and interest rate expectations increase.

Rule of thumb in pre-news trading in a risk-off environment 

• Expect the US dollar to strengthen.
• Look for short positions in EURUSD, GBPUSD, and gold (though gold can behave independently based on its demand dynamics).

If economic data is released without negative surprises (i.e., meeting or exceeding expectations), the US dollar typically experiences a sharp rise. Traders can leverage this volatility by closing positions at the right moment.

For example, the December 2024 Non-Farm Payrolls (NFP) report (released on January 10, 2025) had a forecast of 160k, but the actual number exceeded expectations at 256k. Bond yields had been rising for two weeks before the release, strengthening the US dollar. Given these conditions, a trader could have built a strong directional bias and profited by buying DXY or shorting EURUSD ahead of the news, then exiting after the market reaction.

Here’s the opposite example:

At the beginning of August 2024, US 30-year bond yields were actively declining due to several weak NFP and unemployment reports, along with verbal warnings from Jerome Powell, the Federal Reserve Chairman. Fears of a potential recession resurfaced, and the market was highly anticipating the July NFP report.

This scenario can be categorized as a risk-on environment. Why? Because weak economic data suggested the possibility of lower interest rates in the near future, leading to cheaper money and capital flowing out of fixed-income assets (such as bonds and the US dollar) into speculative assets like stocks.

Given this market sentiment, traders were already positioned for a decline in the US Dollar Index (DXY) and a rise in currency pairs like EURUSD.

After the release of the July NFP data, which came in at 114k compared to the anticipated 175k, the market's bias toward selling the US dollar intensified. As a result, EURUSD surged immediately after the report, confirming the expected market reaction.

How to manage risk for pre-news trading strategy

As you can see, pre-news trading is not a mechanical strategy but rather an approach that requires understanding market sentiment and dominant narratives. Traders must build a predictive model or directional bias and execute trades accordingly.

However, one critical aspect to consider is volatility, which tends to spike after major news releases.

For example, applying an ATR (Average True Range) indicator to a 5-minute chart before and after a news publication typically reveals a sharp increase in volatility—rising from 3 pips to 8 pips almost instantly.

In some cases, the price may immediately move in the anticipated direction. However, it is equally possible for a whipsaw effect to occur, where price action fluctuates back and forth before committing to a clear trend.

Thus, traders should anticipate that:

• Volatility can double on small timeframes (5-15 minutes) and increase by 50% on 30-minute or hourly charts.
• Using half of a normal trading size is advisable to mitigate excessive risk.
• Stop-loss levels should be set at a sufficient distance (15-20 pips) to account for sudden price swings, especially when typical volatility is around 5 pips.

These principles apply to any volatile market condition, but news trading amplifies price fluctuations so quickly that traders may struggle to adjust in real-time. Therefore, precautionary measures—such as reducing leverage before the news release rather than after—are key to effective risk management.

After-news trading (reaction strategy)

There are two types of after-news trading strategies.

The first approach focuses on capturing the wild volatility swings that occur immediately after a news release. This method is inherently risky since traders operate in an uncertain and highly volatile environment with widened spreads and unpredictable market reactions.

Essentially, this strategy involves placing buy limit and sell limit orders at the potential highs and lows of a trading range, anticipating that the price will test these levels and then revert.

This approach works best in a market with no clear directional bias.

For example, in early February 2025, financial markets awaited new data with no strong pre-determined bias regarding the US dollar's movement. As a result, EURUSD exhibited a whipsaw-type price action, capturing both ends of a trading range. This was visualized using a Bollinger Bands indicator (set to 50 on a 30-minute chart).

Tip: Take quick profits once the price touches the middle of the range (the moving average).

The second type of post-news trading involves waiting until the market settles before making a decision. The best approach in this situation is to wait until the US session closes and key fundamental data updates are fully incorporated into the market.

Key data considerations:

• Closing prices of stock and bond markets significantly influence institutional traders' next moves.
• Shifts in key fundamental indicators can reshape market expectations, creating new trading opportunities.

Example:

At the start of November 2024, 45% of traders anticipated an interest rate cut. However, following the Federal Reserve’s decision and the US presidential election, expectations became more balanced, with an equal split between rate cuts and status quo expectations. This sentiment shift transformed the market from risk-on to a more neutral stance, triggering significant moves in major currency pairs.

Here’s what happened with the US Dollar Index during that time:

Impact on the US Dollar Index (DXY): News releases often serve as catalysts for market movement, but the true effects unfold over time as institutional investors adjust their positions. In this case, the shift in interest rate expectations resulted in an extended upward trend for DXY, creating long-term trading opportunities beyond immediate post-news volatility.

Trading is about adapting to change. When fundamental economic shifts occur across global markets, asset prices adjust accordingly, providing traders with profitable opportunities.

Pros and cons of a news trading strategy

Pros:

• Syncing with big capital: News-based trading allows traders to align their trading positions with institutional investors who respond to earnings reports, economic data, and interest rate announcements.
• Opportunities for longer-term moves: Changes in fundamental market conditions triggered by trading news releases can influence both short-term volatility and intermediate-term trends.
• Minimizing market noise: Paying attention to fundamental factors rather than daily price fluctuations can help traders make more reliable and informed decisions.

Cons:

• Infrequent opportunities: Game-changing news events do not occur often, and new traders may struggle to find consistent setups based solely on news-based trading.
• High volatility risks: Market reactions to interest rate announcements and bad news can cause extreme price fluctuations, making it difficult to manage risk effectively.
• Cognitive overload: The vast amount of fundamental data from earnings reports, economic indicators, and other trading news releases can overwhelm new traders, requiring patience and experience to analyze effectively.

Key takeaways

1. News trading is based on economic releases, earnings reports, and geopolitical events.
2. Market volatility increases significantly after major news publications.
3. Pre-news trading involves building a directional bias and positioning ahead of releases.
4. After-news trading capitalizes on post-release volatility swings or market stabilization.
5. Risk management is crucial due to the unpredictability of news-driven market movements. Traders should use stop-losses and position sizing to control risk.
6. Key economic indicators include employment data, inflation reports, and interest rate decisions.
7. Understanding market sentiment helps anticipate price reactions to news.
8. Liquidity and spreads may change dramatically during major news events. Choosing a reliable broker with stable spreads can help traders avoid excessive costs, and unpredictable order fills during volatility.

Final thoughts

News trading can be a powerful strategy for traders who understand economic fundamentals and risk management. While news releases create volatility, they also present lucrative opportunities for those who can anticipate and react effectively. However, due to the complexity and risks involved, it’s essential to practice before committing real funds.

If you’re new to news trading, consider starting with a demo account to familiarize yourself with how different news events impact the market. By refining your strategy in a risk-free environment, you can develop the confidence and expertise needed to trade the news with real money successfully when the time is right.