The news event breakout strategy focuses on capitalising on the sharp price movements that occur immediately after major economic announcements. News releases often create sudden volatility as market participants react to new information, making them prime opportunities for traders to catch powerful breakouts.

In this article, we explain how the news event breakout strategy works and how to apply it effectively across different markets.

What is a News Event Breakout?

A news event breakout happens when:

• A major news release (such as Non-Farm Payrolls, central bank decisions, inflation reports) causes a rapid and significant price movement.
• Price breaks out of a pre-news consolidation range.

Markets often move quickly to price in the new information, leading to strong momentum in a short time.

Why the News Event Breakout Strategy Works

• Creates Extreme Volatility: News shocks cause sudden supply and demand imbalances.
• Leads to Large Moves: Markets reprice assets quickly based on new data.
• High Reward Potential: Properly managed trades can capture fast, substantial profits.

How to Set Up for a News Event Breakout

Here’s how to prepare:

1. Identify upcoming major news events using an economic calendar.
2. Focus on high-impact events like:
   • Central Bank Interest Rate Decisions
   • Non-Farm Payrolls (NFP)
   • CPI (Inflation Data)
   • GDP Releases
   • Major Political Announcements
3. Switch to a 1-minute or 5-minute chart shortly before the release.
4. Mark the pre-news high and low to define the breakout range.

How to Trade the News Event Breakout Strategy

Here’s a structured approach:

1. Pre-News Setup

• Draw horizontal lines at the pre-news high and low.
• Wait for the news release without taking positions beforehand.

Pro Tip: Stay out of the market immediately before the release to avoid random spikes.

2. Entry Strategy

• Buy Setup:
  • Enter long when price breaks and closes above the pre-news high with strong momentum.
• Sell Setup:
  • Enter short when price breaks and closes below the pre-news low with strong momentum.

Confirmation from a volume spike strengthens the signal.

3. Stop-loss Placement

• For long trades, place the stop-loss just below the pre-news high or the breakout candle’s low.
• For short trades, place the stop-loss just above the pre-news low or the breakout candle’s high.

Tight stops are crucial during high volatility.

4. Profit Target

• Aim for quick, predefined targets: 20–50 pips in forex or 1–2% moves in stocks, depending on the market.
• Alternatively, use a trailing stop to ride a larger move if momentum remains strong.

Fast exits protect against sudden reversals often seen after initial breakouts.

5. Risk Management

• Risk no more than 0.5% to 1% of your trading capital per trade.
• News trading carries higher risk, so position sizing and discipline are vital.

Best Practices for News Event Breakouts

• Focus on Major Releases: Only trade events with a history of causing big market moves.
• Use Brokers with Fast Execution: Slippage can be an issue during news spikes.
• Wait for a Clear Breakout: Avoid trading on initial whipsaws or fakeouts.

Straddle Strategy Variation

Another approach is the news straddle:

• Place pending buy and sell orders just above the pre-news high and below the pre-news low.
• One order triggers depending on the breakout direction.
• Cancel the opposite pending order immediately.

This method captures fast breakouts but must be managed carefully to avoid getting caught in a whipsaw.

Common Mistakes to Avoid

• Trading Without a Plan: News events can cause unpredictable movements — plan your entries, stops, and exits in advance.
• Overleveraging: Volatility can wipe out accounts quickly.
• Ignoring Spread Widening: During news events, spreads often widen dramatically.

Advantages of the News Event Breakout Strategy

• High Profit Potential: One trade can deliver significant returns.
• Exciting and Fast-Paced: Perfect for active traders.
• Works Across Markets: Forex, stocks, commodities, and indices react strongly to news.

Conclusion

The news event breakout strategy provides traders with an exciting and powerful way to profit from major market-moving events. By preparing in advance, waiting for clear breakouts, managing risk tightly, and exiting quickly, traders can consistently capture opportunities created by the world’s biggest news releases.

To master techniques like the news event breakout strategy and build a complete professional trading plan, explore our expert Trading Courses designed to help you trade faster, smarter, and more successfully.