Sell the Rumor, Buy the News: What Is News Trading?

Have you ever heard of news trading? It’s popular with day traders, since you can typically open and close on the same day. But what does selling on a rumor, buying on news mean? And is news trading right for you?  

We answer these questions and more below. 

What Is News Trading?

News traders trade – you guessed it – news. This includes scheduled announcements, headlines, and breaking news. Economic reports may also be considered news for trading purposes. 

For traders, news falls into two categories: “recurring” and “unexpected”.

• Recurring: Recurring news is predictable. It occurs at frequent intervals, or it’s something we anticipate. For example, Federal Reserve interest rate announcements are scheduled in advance. Rates change roughly eight times a year, so we can predict when announcements are imminent.  
• Unexpected: Unexpected news includes breaking news and developing stories. It’s a sudden development that no one expected e.g. conflict or a natural disaster.  

News Trading Strategies

News traders use various strategies to trade profitably. The most common strategies are fading, familiarization, and alerts. 

• Fading: Traders sense that enthusiasm for a stock is fading even though it’s still high. For example, this is why you might sell stocks for good news. If you time it right, you can sell when the price peaks.  
• Familiarization: The trader uses historical data, or precedents, to make trading decisions. This is useful when trading recurring news.  
• Alerts: Traders determine the best time to buy or sell by setting up alerts to notify them of breaking news. They monitor trending markets closely.  

Whether you trade recurring or unexpected news, and whatever strategy you use, there’s one common goal. You’re anticipating the impact of the news announcement on the wider market.  

Red folder news, for example, can have a significant impact on the markets due to its importance. But so can rumors and expected developments. This is where “buying on rumor, selling on news” derives from.  

Buy the Rumor Sell the News Meaning

Buying on rumor, selling on news comes down to speculation. You’re anticipating, or expecting, a news announcement. You buy based on the rumor, and you sell when the news is announced.  

Why buy on rumors? Because you’re speculating that the news will increase the price for the asset. You buy when the price is (relatively) low, and quickly sell at a profit based on a short-term price spike. It’s unsurprising, then, why this is a popular strategy with day traders!    

For example, if you suspect that the interest rates will rise for a certain currency, you might buy in that market. When the news emerges, and interest rates rise, you can sell the currency back for a higher price.  

Pros of Buying on Rumors, Selling on News

There are a few upsides to trading on rumors.  

• If the rumors are accurate, traders can make profitable trades by following the speculation.  
• You can make multiple successful trades in a short space of time if the news develops as planned.  
• News trading revolves around market volatility. It can be a useful strategy for day traders focused on short-term price changes.    

Buying on the Rumor Selling on News Drawbacks

All that said, buying on rumors and selling on news has its downsides, too.  

• There’s always the chance that the news story flops. In other words, it doesn’t live up to expectations and has little to no impact on the market.  
• On the other hand, the news story could impact the market in unexpected ways. Prices may actually fall, depending on how the market reacts. You could then lose rather than make money.  
• The news story may not develop at all. News is unpredictable – it’s a risky trading strategy to rely on speculation.  

Who Can Become a News Trader?

Anyone – there are no barriers to entry. It’s just like any other market. And as with trading any other asset, it all comes down to spending time learning the market and building a trading strategy. Good news traders are typically: 

• Confident: Traders who understand the market and have faith in their trading strategy can do well.   
• Risk-aware: News trading can be volatile. You need a clear risk management strategy and the discipline to stick to it.   
• Steady: You need the ability to avoid “knee-jerk” reactions. It’s crucial you stay objective and focused on the larger picture – and your trading strategy.  

Tips for Selling the Rumors, Buying the News

So, you’re ready to sell rumors and buy news. Before you start, here are some pointers to bear in mind. 

• Start with a demo account. You can practice news trading without risking any of your capital.  
• Use insight and market research tools. If you’re working with a reliable prop firm, you’ll have leading tools at your disposal – and guidance when you need it.  
• Think about where news trading fits into your wider day trading strategy. There are many markets to trade in, such as Forex. Consider whether news trading truly interests you before you start making moves.  
• Determine your risk appetite. It’s always challenging to trade on rumors, for one thing. And when you trade the news, there’s always a risk that prices won’t go in the direction you expect.  

News trading can be risky, especially when you’re trading on rumors. But it can also be rewarding, if you study your markets carefully. And remember, if you use your own capital as a day trader, never trade with more than you can afford to lose.

Rules for News Trading

At Maven Trading, we’re all about striking a balance between risk and reward. So, to minimize risk, you can’t open and close a trade within two minutes of the news breaking. This rule still allows day traders plenty of time to buy the news and sell rumors!  

You can learn more about our trading rules here. 

News Trading at Maven Trading

It’s not easy to trade the news. Think of it as a strategy you can refine over time. But if you want to practice your news trading skills and learn how to profit from rumors, we can help. 

At Maven Trading, we offer demo accounts to promising traders. You make the trades, we give you the simulated capital you need to make moves. And if you make a virtual profit? You’ll retain an agreed percentage!  

Since we provide the simulated capital, there’s no risk to you. Simply choose your account, try our challenges, and start trading if you pass. At Maven Trading, we have certain restrictions on news trading, so make sure you read the terms and conditions first.  

Ready to take the next step in your trading journey? Open an instant funding account or try our challenge accounts. Make your choice today!