What is News Event Trading?
News trading is taking a position before, during, or after an economic news event with the intention of profiting from the anticipation or reaction of the news event. These news events could be a Federal Reserve Interest Rate decision, Gross Domestic Product release, or something more common like the weekly unemployment number.
The latest news tends to be market moving, but scheduled economic news still carries significant impact on prices. Drastic news or deviations from expected numbers can cause abrupt position changes and are arguably the largest factor in many quant approaches to the market.
Finding how certain news events impact your strategy or the underlying market you aim to trade can have tremendous P&L implications. Build Alpha now offers a way to test and evaluate any news event on any market or timeframe without the need to program.
What News Events are Available
There are nearly hundreds of news events around the world, but Build Alpha supports those with the largest impact on global markets. In most cases, there is data available for many decades. A full list of supported news events:
- Gross Domestic Product (GDP)
- Producer Price Index (PPI)
- Consumer Price Index (CPI)
- Beige Book
- FOMC Minutes
- Fed Interest Rate Decisions
- Retail Sales
- ISM Manufacturing Index
- Housing Starts
- Treasury Auctions
- International Trade Balance
- Durable Goods
- Nonfarm Payrolls
- EIA Petroleum Status Report
- Redbook
- Consumer Sentiment
- Consumer Confidence
- Existing Home Sales
- Industrial Production
- Import and Export Prices
- Jobless Claims
- Chicago PMI
- Factory Orders
- JOLTS
- Empire State Manufacturing Survey
To find past and upcoming financial markets events, for every country and all currencies, this is a great forex economic calendar: Daily FX Calendar
3 Different Uses of News Events
News Events are helpful in a variety of ways for automated strategy development and there are three obvious use cases.
Trading Before A News Event
Build Alpha enables traders to offset the news event with a negative value to specify how many days prior to the news event to test. This can help traders discover edges leading up to important announcements or anticipatory price action. The “buy the rumor, sell the news” adage comes to mind here and can be tested now.
Click on any news event and set the start to a negative value. The negative value is how many days prior to the news event a signal will trigger.
Above tests 3 days prior to an FOMC Minutes release
Trading After a News Event
News events often cause aftershocks across markets and testing post the event is equally important to find edges or pitfalls with certain short-term strategies.
Click on any news event and set a positive value to test how many days after a news event to trigger a signal.
Above tests 4 days after a Consumer Price Index or Inflation release
Trading the Day of the News Event
Most of the action is typically right before or right after the event is released but on the day of the event. Setting the offset to 0 will allow traders to generate signals for the day of the event.
Traders can also set timeframe and time signals to specify the hours of the event day to permit trading. For instance:
- 2 PM on Fed Days
- 2:30 PM on Fed Meetings
- 8:30 AM on NFP Days
- 8:30 AM on CPI Days
Please note historical release times may not be what they are currently scheduled. Build Alpha historical data captures this, but traders must understand when configuring event plus time combinations for historical backtesting
Testing News Events and Reported Values
An additional use of the News Testing is to use the Economic Data signal category group in Build Alpha to test specific reported values. This enables traders and investors to build strategies that only trade if
- GDP greater than 2.5%
- CPI is less than 5.0%
- NFP is more than 200K
- AAII Sentiment less 35
- Etc.
Simply click on Economic Data signal and configure the values to test. Below tests trading when GDP is above –2.5, -2.0, -1.5, -1.0, -0.5, 0.0, 0.5, 1.0, 1.5, 2.0 and 2.5.
Soon Build Alpha will support estimates and the delta between actual and estimated reported values. However, testing current reported values allows traders to add context to trading and investment strategies that price action alone cannot do. Has the interest rate environment changed from a month ago? If so, do you think your strategy should know about it?
Avoid News Events
A trading system can avoid trading on News Event days by simply adding a rule that the News Event Day is not 0. To do this, right-click on any strategy or create a custom signal and add a rule to avoid trading on any news event day or related release.
Check Strategy Performance on News Event Days
To see how a strategy performs during different news events, select a strategy in the Results Window and open the Robustness Testing display. In this display, please select the News tab. This will show how your strategy does on days with and without each news event. This data can be used to add filters or investigate unnoticed trading edges.
Notice bad performance during a certain News Event? Maybe the central banks are not your friends. Prohibit trading or investigate further with data, not gut feel.
Can you Backtest News Event Trading?
Yes, Build Alpha produces fully accurate backtests on all supported news events. These News Event strategies can be exported into any of the supported platforms to view historical performance as well. Please note Build Alpha does show OHLC charts with trades as well.
To read about proper backtesting and play with a free web-based backtesting tool head here: Backtesting Complete Guide
Can you Automate News Event Trading?
Yes, Build Alpha also produces two options to view News Event strategies in real-time. First, you can view live alerts, P&L and strategy positions in Build Alpha’s new Live Monitoring window. Second, the generated code pulls live news schedules for real-time trading all with no programming needed.
News Event Trading Strategy Example
This first strategy goes long S&P500 futures emini contract one day before a GDP announcement and sells the next open or the day of the GDP report. This strategy should not be considered a standalone edge but does provide an interesting starting point for those interested in finding anomalies around News Events.
Results shown using only 1 contract per entry
Another News Event Trading Example
How about going long Gold futures two days after Nonfarm Payrolls? This strategy has produced a pretty consistent equity curve going back to 2005. Again, not meant to be a standalone strategy, but perhaps a good starting point to find intraday strategies backwards using the Intraday Edge feature.
Results shown using only 1 contract per entry
How do you trade a news event?
We have covered many approaches, but I want to share a few other ideas to hopefully spark your need for data-driven insights.
Combine news with price action
For example, only trade if we are 2% higher after an important economic release or price falls N candles in a row following the time of the news reports. Setting volatility thresholds is also an interesting avenue to search.
Combine news with time windows
Combine news events with a time window. Only trade if something happens within a specified period of time before or after a particular news release. The financial industry is either obsessed with an event or completely moves on to the next.
Combine news with Holidays
Do reactions to news events look the same when we have a shortened week or are near a holiday event? Trigger signals allow traders to require two events to be within N bars of each other which can create additional opportunities for exploration.
Combine news with Sentiment
Market conditions can have a great impact on how or which news events are deemed important or “market moving”. Tracking investor sentiment through AAII survey or Google Trends data can give insight into what market type we are currently in. Check out the other Market Breadth signals available here.
Need to Know
- News Events move markets
- Backtest News is possible
- Build around news events
- Avoid news events
- Multiple ways to trade
- Before
- After
- Day of
- Reported value
- Avoid
News Event Trading Video Example
Final Thoughts
News Event or Event Trading is a significant strategy in many hedge fund and professional trading operations. Building models or automated trading systems to capture anomalies around economic releases or to trade around certain news events in common place. However, many retail traders overlook news events or treat them like gambling opportunities despite previous analysis that shows otherwise. Build Alpha enables traders to quantify their ideas and strategies around news events using point-and-click signals in the strategy development process.
Author
David Bergstrom – the guy behind Build Alpha. I have spent a decade-plus in the professional trading world working as a market maker and quantitative strategy developer at a high frequency trading firm with a Chicago Mercantile Exchange (CME) seat, consulting for Hedge Funds, Commodity Trading Advisors (CTAs), Family Offices and Registered Investment Advisors (RIAs). I am a self-taught programmer utilizing C++, C# and python with a statistics background specializing in data science, machine learning and trading strategy development. I have been featured on Chatwithtraders.com, Bettersystemtrader.com, Desiretotrade.com, Quantocracy, Traderlife.com, Seeitmarket.com, Benzinga, TradeStation, NinjaTrader and more. Most of my experience has led me to a series of repeatable processes to find, create, test and implement algorithmic trading ideas in a robust manner. Build Alpha is the culmination of this process from start to finish. Please reach out to me directly at any time.
