Article by Charl Stander
You need to be extremely careful whilst trading during events such as news, exchange downtime or other unnormal trading conditions. It is recommended not to trade within either side of 15 mins of a news announcement. This is not only because of the high volatility involved in the cryptocurrency markets, but the uncertainty to how the market will react thereafter.
There is a famous saying from a well-known economist “The market can remain irrational longer than you can remain solvent.”
We have seen traders be humbled by the markets time and time again, entering highly leveraged trades expecting the market to react a certain way to news announcements and the market going the other way. This is why you will hear us repeatedly mention the importance of waiting for trade confirmations throughout the entirety of our academy courses.
Why trade the news at all?
The simple answer to that question is “To make more money!”
But in all seriousness, as we covered in our How to start trading cryptocurrencies using fundamental analysis article, the news is a very important part of the cryptocurrency market because it has the potential to move price drastically. Market manipulation is also common due to the unregulated trading environment that decentralised assets offer.
When news comes out, especially important news that everyone is watching, you can almost certainly expect to see some major movement. Either positive moving price up, or negative moving price down. Your goal as a cryptocurrency trader is to get on the right side of the move, but the fact that you know the market will most likely move somewhere makes it an opportunity definitely worth looking at.
What are the dangers of trading the news?
As with any trading strategy, there are always possible dangers that you should be aware of. A major danger to look out for is price slippage. Slippage occurs when you wish to enter the market at a certain price also known as an order, but due to the extreme volatility during these events, you actually get filled at a far different price. Big market moves made by news events often don’t move in one direction. Often times the market may start off flying in one direction, only to be moved back in the other direction.
Trying to predict the right direction can often be difficult. Profitable as it may be, trading the news isn’t as easy as reading an article. The markets are simply a connection of human beings all over the world stating the prices of an asset, it is almost impossible to predict what they will perceive the news as, either positive or negative.
We recommend waiting at minimum 15 minutes before entering a trade as this will give you much more clarity as to the impact and trend that the news event or announcement has had.
At the time Bitcoin was at the most stable price in months, after trading sideways for a week, Bitcoin volatility came back roaring with a 6% move, adding $5 billion to the total market cap in about 20 minutes.
In the world of crypto, 5-6% moves in minutes are the norm, however, it’s often very difficult to determine the specific catalyst for pumps or dumps.
This downtime and extreme price movement left many traders who were short, predicting the price to go down, were left helpless as they couldn’t access the exchange to close their positions and ended up taking a loss.
This particular move raised red flags due to the seemingly planned nature of the pump, as well as the subsequent outcry from the community about the unfair and manipulated nature of the markets. It happened the exact second that the exchange went down for maintenance. When BitMEX came back online, many people who had short positions were immediately liquidated at sky-high prices due to huge price movement during the pump. In the minutes after re-opening, BitMEX saw Bitcoin prices briefly hit $7,100, just seconds after trading at $6,450.
As you can see trading the news is very risky.
If you had followed our strategy and waited 15 minutes before entering a position you would have saved yourself being caught out on the wrong side of this move.
The news can overpower any technical or fundamental analysis and move prices exponentially. Our strategy is that we would rather miss out on these opportunities and only enter trades with high probabilities after we have received trade confirmations. As black swam events are very hard to anticipate.