As a trader, it can be tempting to stay glued to your computer screen during major news events, such as the release of economic reports or central bank announcements. After all, these events can cause significant price movements in the markets, and there's often the potential for big profits to be made. However, while it may seem counter intuitive, there are several reasons why you might want to consider avoiding trading during these events altogether.
Volatility can be unpredictable: While it's true that major news events can cause significant price movements, the problem is that these movements can be unpredictable. You might expect the market to react in a certain way, only to find that it moves in the opposite direction. This can make it difficult to accurately predict where the market is headed, and can lead to unexpected losses.
Spreads and slippage: During major news events, trading volumes can increase significantly, which can cause spreads to widen. This means that you may end up paying more for your trades than you would during normal market conditions, which can eat into your profits.
Emotions can run high: When there's a lot of volatility in the markets, it's easy to get caught up in the excitement and make impulsive trading decisions. This can lead to overtrading, taking on too much risk, or making trades based on emotions rather than sound analysis.
Risk management can be difficult: During major news events, risk management can be particularly challenging. Stop-loss orders can be triggered unexpectedly, and price gaps can occur, which can result in losses that are larger than anticipated.
While it can be tempting to trade during major news events, it's important to consider the risks involved. By avoiding trading during these times, you can help to reduce your exposure to volatility and market uncertainty, and improve your chances of making profitable trades over the long term.
Stay tuned for more insights and tips on the Strategic Trading Blog.
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