# News Trading Explained: Strategies Behind 'Buy the Rumor, Sell the News'

## What Is a News Trader?

News traders capitalize on the effect of breaking news and economic reports on market sentiment. They aim to profit by reacting swiftly to revised stock and bond prices before and after key announcements. Whether it's a scheduled earnings release or a surprise event, news traders exploit market volatility for swift gains.

### Key Takeaways

*   News traders capitalize on market volatility by trading around scheduled announcements and unplanned events that could affect asset prices.
*   The "buy the rumor, sell the news" strategy involves trading before or immediately after news releases to take advantage of market sentiment.
*   News traders are often day traders who capitalize on the short-lived impacts of news to open and close positions within the same day.
*   Tools like historical data analysis and breaking news alerts help news traders anticipate price movements and make informed trading decisions.

## How News Traders Operate in the Market

The adage "buy the rumor, sell the news" recognizes that rumors have one effect on a security's price and news can have the opposite effect. Thus, news traders focus on trading just before or right after news, when the market reacts. These periods are characterized by a high amount of [volatility](https://www.investopedia.com/terms/v/volatility.asp) that creates an opportunity to profit.

News traders try to profit from the timing or likely content of scheduled news announcements for the most part. When news is scheduled, like earnings releases or [Federal Reserve](https://www.investopedia.com/articles/economics/08/federal-reserve.asp) meetings, trading involves betting on the announcement's impact. In fact, the Federal Reserve has tried to soften the market impact of its proclamations by foreshadowing every major policy decision well in advance, but even these policy signals have become tradable events.

When the news is a surprise to everyone, as in a natural disaster or [black swan event](https://www.investopedia.com/terms/b/blackswan.asp), news traders try to position themselves to profit. Sometimes this means playing the volatility or making a call on the immediate directional impact of the news on current price trends.

> **Fast Fact**
>
> In most cases, news traders are a type of day trader, as they generally open and close trades on the same day.

## Essential Tools and Strategies for News Traders

News traders leverage many different strategies with a focus on [market psychology](https://www.investopedia.com/terms/m/marketpsychology.asp) and historical data. Traders may look at historical data, for example, such as past [earnings reports](https://www.investopedia.com/terms/e/earningsreport.asp), to predict how upcoming news, like an upcoming earnings report, is likely to affect prices. By becoming familiar with specific markets, news traders can make educated guesses as to whether a security will increase or decrease in price following a news report.

News traders can also set up queries and alerts to gather breaking news and correlate it with changes in the price action on a chart. If certain criteria are met, the news trader will then enter a bullish or bearish position depending on the trading strategy. As news is timely and usually short-term in impact, the opportunity to profit only exists for as long as the news is fresh.

News traders often use fading, a strategy that trades against the trend as enthusiasm fades. A stock might open sharply higher, for example, after a positive earnings announcement during pre-market hours. News traders might watch for this optimism to reach a high and then [short sell](https://www.investopedia.com/terms/s/shortselling.asp) the stock [intraday](https://www.investopedia.com/terms/i/intraday.asp) as optimism wears off. The stock might still be trading sharply higher compared to the prior day, but the traders may have profited from the difference between the highs and lows of the day.

## The Bottom Line

News traders capitalize on short-term market movements driven by scheduled or unexpected news. They exploit market sentiment to profit from volatility surrounding news events. While the "buy the rumor, sell the news" tactic captures potential price shifts, forecasting precision remains crucial. Traders often rely on market psychology, historical trends, and timely alerts to inform their strategies. As most news-driven opportunities are fleeting, news traders frequently operate as day traders, completing their transactions within the same day.