Trading the news intraday: spikes and spreads
Understand the phases of a news release, measure how spreads and slippage change, and choose between standing aside and a rules-based second-move entry.
What you will learn
- The three types of intraday news and the four phases of a release
- How to calculate the real cost of a position held through a release
- A rules-based "second move" approach after the first spike
- How to size positions for the worst-case jump during a news window
Explanation
The economic calendar, consensus forecasts and the idea that the surprise moves prices are covered in the courses "Macro" and "Risk Management". This lesson focuses on the minute-by-minute mechanics a day trader faces.
Three types of intraday news
- Scheduled macro releases: for example inflation data, labour-market reports and central bank decisions. The time is known in advance; the result is not.
- Scheduled company news: mainly earnings reports. Many companies publish outside regular trading hours, so the reaction often appears as a gap at the next open.
- Unscheduled headlines: political statements, profit warnings, accidents. Their timing cannot be planned, which is why position limits from the previous lesson matter.
The four phases of a scheduled release
- Pre-release (about 5–15 minutes before): liquidity providers pull orders, the book gets thin and spreads widen.
- Release (first seconds): price can jump several levels at once. Stops are triggered and filled at whatever price is available.
- Whipsaw (first minutes): fast moves in both directions as traders react to details and revisions.
- Digestion (roughly 15–60 minutes): spreads normalise and a clearer direction may or may not develop.
Exchanges may pause trading during extreme moves (volatility interruptions or halts, covered in "Order Books, Liquidity & How Orders Are Filled"). During a pause you cannot exit.
Three ways to handle news
- Stand aside: be flat from a fixed time before the release (for example 5 minutes) until a fixed time after (for example 15 minutes). This is the default for most rule sets.
- Second move: wait for the first range to form (for example the first 5 minutes after the release), then trade a break of that range with a stop inside it, once spreads are back near normal.
- Hold through: keep an existing position open only if it is already in profit and sized so that a jump to your worst-case price stays within your daily limit.
A worst-case price is a pessimistic estimate of where a stop could fill during the news window. Use it instead of the stop price for sizing: Size = planned risk ÷ (entry − worst-case price).
Worked example
Hypothetical example: EUR/USD, 1 standard lot (100,000 euros), so 1 pip (0.0001) = $10. Normal spread 0.8 pips; spread at the release 5 pips. Assumed exchange rate for conversion: 1.10. Commissions and taxes excluded.
Case A: entering just before the release.
- Planned risk: 15-pip stop × $10 = $150 (1R).
- Entry during the wide spread costs 5 − 0.8 = 4.2 extra pips: 4.2 × $10 = $42.
- The stop fills 8 pips beyond its level: 15 + 8 = 23 pips × $10 = $230.
- Total loss: $230 + $42 = $272, or $272 ÷ $150 = 1.81R. In euros: $272 ÷ 1.10 = €247.27.
Case B: second move.
- The first 5-minute range after the release is 1.1000–1.1040. The spread is back to 1.2 pips.
- Entry: buy on a break above 1.1042. Stop at the middle of the range, 1.1020: 22 pips.
- Size for $150: $150 ÷ (22 × $10) = 0.68 lots. Risk: 22 × 0.68 × $10 = $149.60.
Case B does not guarantee a profit; it means the trader pays normal costs and knows the risk.
Common mistake
Practice activity
On paper, hypothetical data: you hold 400 shares bought at €30.00 with a stop at €29.50 (1R = €200). An unscheduled headline hits and your stop-market order fills at €28.90.
- What is the loss in euros and in R?
- If you had sized for a worst-case price of €28.50 during known news windows, how many shares would you have held for the same €200 risk?
Show solution
1. Loss: (€30.00 − €28.90) × 400 = €1.10 × 400 = €440 = €440 ÷ €200 = 2.2R.
2. Distance to worst case: €30.00 − €28.50 = €1.50. Size: €200 ÷ €1.50 = 133.3, so 133 shares.
Limitations: an unscheduled headline cannot be planned, and a real jump can be larger than any worst-case estimate.
Key takeaways
- A release has four phases; spreads and stop fills are worst in the first seconds and minutes.
- Standing aside is a valid and often best decision around scheduled news.
- A second-move entry waits for the first range and normal spreads, then uses a defined stop.
- Size positions held through news from a worst-case price, not from the stop price.
Next step
In the next lesson you will measure whether your intraday trading works at all once commissions, spreads and slippage are counted.
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