How to profit by trading on unscheduled breaking news
Broadly speaking, market moving stock news can be broken down into two categories:
- Scheduled news (i.e. expected)
- Unscheduled news (i.e. unexpected)
In the following I'll detail different types of news within these categories and motivate why you might want to consider trading on unscheduled (i.e. breaking) news.
Scheduled news
Scheduled news, as the name would suggested, is released at some agreed point in time, often due to regulatory constraints. Some of the types of scheduled news you may expect to move markets are:
- Earnings reports
- Merger and acquisition
- Product launches
- Insider buying / selling
The problem with scheduled news, however, is well… it’s scheduled. The formal nature of these releases mean that thousands, if not millions, of stock traders and bots are all listening to the same RNS (Regulatory News Service), poised to place their orders. It’s basically impossible (and obviously quite illegal) to gain a time advantage on scheduled news —and difficult to adopt a profitable strategy, especially when you are up against supercomputers and 10GBps connections.
Unscheduled news
On the other hand, unscheduled news can present retail stock traders with profitable trading scenarios as there is:
- No single source of information (i.e. an RNS)
- No specified publish date / time
These two factors make trading on unscheduled news much more appealing to day traders… but what sort of news should be been looking for and where should be be looking? To answer the second question you should certainly be monitoring social media as this is where most news breaks in 2018. As for what types of news and content:
Influential politicians and celebrities
As we recently detailed in a Medium blog, social media influencers can have a massive impact on stock markets. It all started at the end of 2016 when Donald Trump’s tweets caused the stock prices of Lockheed Martin to plummet by almost 5%. Since then, others such as Kylie Jenner have also joined the party:
- Donald Trump vs Amazon
Result: -$30.4B - Donald Trump vs Lockheed Martin
Result: -$5.8B - Kylie Jenner vs Snapchat
Result: -$1.3B - For more examples check out “7 tweets which wiped $40 billion off the stock market”
Influential technical analysis
Whether you believe technical analysis charts are the holy grail or a pseudoscience, there is no denying that millions of traders trade on the back of these graphs…
…and if you're social media following is large enough, you may (inadvertently) move small cap markets by simply posting a chart which some lines on it.
Therefore it is important to listen to technical analysis from influencers even if you don't believe in the “science” of TA itself.
Some of the “most influential” chart posters within the stock trading Twitter-sphere are listed below:
- Mark Minervini @markminervini — 187k followers
- Joe Kunkle @OptionsHawk — 54.5k followers
- Trader Stewie @traderstewie — 76.6k followers
- Aswath Damodaran @aswathdamodaran — 82k followers
- Urban Carmel @ukarlewitz — 45k followers
- For a more complete list check out “insightful stock traders to follow on Twitter in 2018”.
Leaks and rumours
“Buy the rumour, sell the news” — the oldest cliché in the game. Rumours and leaks can have the same effect on stock prices as official announcements, if not more; the notion of “knowing something before everyone else” often results in frenzied trading activity.
In April 2015 Twitter’s stock price plummeted 18% in the hour before the close of trading after the company’s disappointing first-quarter results were leaked early by a financial data firm, resulting in a huge selloff.
One important thing to remember, however, is that the stock markets “price in” its expectations as it sometimes can foresee these unofficial news announcements. Therefore, in these cases, if the rumours are confirmed by official news sources, stock prices may drop down temporarily, before going up.
CEO changes
The change of CEOs often affects the perception of investors about a company, therefore CEO resignations & appointments have a major impact on stocks prices. The CEO of Hewlett-Packard Mark Hurd was forced to resign amid sexual harassment allegations in 2010, causing the stock price of the company to fall by 10%.
Sometimes having a new CEO may bring prosperity to the company however i.e. if the old CEO had perceived to cause the company losses. For example, in January 2015 McDonald’s stock price jumped 5% on the news that CEO Don Thompson would resign. Don Thompson was blamed for many of the problems McDonald’s had during his period as a CEO, such as declines in same-store sales, undermining children’s well-being and not embracing the healthy food trend.
Naughty CEOs
The public’s perception of a CEO is certainly linked to it’s share price as Elon Musk found out when Tesla’s market cap dropped ~6% after smoking weed on Joe Rogan’s podcast.
The CEO of the AA also learned this lesson the hard way after he decided to punch his colleague in a hotel lobby. A punch which cost the company ~$260m…
The bottom line
Trading on unscheduled news is an oversaturated market and difficult to master. Conversely trading on unscheduled unexpected news and content from social media can present many more opportunities for retail day traders. Unfortunately most of the unscheduled mews categories discussed above are infrequent; arguably the most frequent source of unexpected market moving “news” is technical analysis by leading influencers on social media.
If you'd like to learn more about “trading the news” check out our recent guide.
This article was collated by Scoop Markets.
Scoop is the breaking news & analytics dashboard for stock traders.
- Our algorithm analyzes thousands of tweets every second to identify breaking news, before it breaks.
- We have the largest collection of technical analysis available online
- In depth analytics, trading signals, alerts and more…
