I am often asked about the risk of daytrading and how I handle it when news comes out.
And the answer is quite simple: I’m not holding any trades over big news.
As simple as that!
Now I do the most trades in indexes, i.e. DAX and DOW. When I trade these markets, it’s the big international news I’m looking at. That is, accounting figures from individual companies are largely irrelevant. While interest rate statements, unemployment rates, etc., primarily from Europe and the United States, are some of the great news that can move the price considerably. Where I find these numbers are on the following website: Major news figures
Here you will find a countdown for the news, as well as an indication of what the market expects from the news. So, it’s important to keep an eye on these numbers if you’re going to survive with your whole skin through your long-term daytrading.
What is the risk of daytrading through news?
Many new daytraders often think that you can trade and just put a stop-loss to ensure your risk is defined. But if the market suddenly gaps – that is, the market is moving rapidly up or down – a stop loss cannot be enforced, and then you risk massive losses. If possible, read the article 6 pitfalls using stop-loss.
Below you can see a chart of the DAX Index on December 3, 2015.
There were job numbers from the United States and at the same time statements about future interest rates in Europe. These factors were interpreted negatively by the market, which played out in this way:
Here, DAX loses almost 400 points in just 16 minutes. For several periods in these 16 minutes, the market was even suspended by many brokers, so that transactions could not be completed.
If you had gone long in the market – i.e. That you had betted on an increase in the price – and you, for example. Had bet 50 $ Per point, you would have lost 20,000 $ in just 16 minutes. If you had $ 25,000 in the account, you would have lost 80% of your money in a quarter!
But you can always minimize your risk if you stay out of the market when the risk is greatest.
Hereby comes the entire area called General Risk Management and Money Management. But this will be covered in a separate article, as it is an important topic.