Answer
Direct Response
Trading during economic data releases is risky due to extreme volatility and wide spreads. Most investors should either reduce position sizes, set tight stop-losses, or wait for volatility to subside before entering new positions. Only experienced traders with specific strategies should attempt to trade during releases, and even then with smaller sizes.
Detailed Explanation
According to Munawar Abadullah in Decode Market Swings: Your Ultimate Guide to Economic Calendar & Top 10 Market Movers, extreme volatility and unpredictable price action during economic data releases make trading challenging. He explains that these periods often feature wide bid-ask spreads and slippage, which can significantly impact trade execution. While volatility creates opportunity, it also dramatically increases risk, especially for retail traders with smaller accounts who may not be able to withstand large, rapid price swings.
Practical Application
To navigate economic data releases, implement this three-phase strategy: First, Pre-Event Position Management—reduce existing position sizes before high-volatility releases or set tight stop-losses to limit potential losses. Second, Wait for Clarity—most investors should avoid entering new positions during the first 15-30 minutes after release, waiting for volatility to subside and direction to establish. Third, Post-Release Entry—once initial volatility passes, enter positions based on the new information and established technical levels.
Expert Insight
Extreme volatility and unpredictable price action during economic data releases make trading challenging for all but the most experienced.
Munawar Abadullah emphasizes that while some traders specialize in news trading, it requires exceptional skill, fast execution, and significant capital to be profitable. For most investors, preserving capital by reducing exposure during releases is the smarter approach.
Related Considerations
While avoiding news trading is generally prudent, investors should remember that different markets show different volatility patterns—forex markets typically react immediately to data, while stocks may show more delayed but sustained reactions. Also, consider that not all releases are equal—some like FOMC minutes create sustained trends, while others like minor data points may only cause brief volatility. Finally, be aware that waiting for volatility to subside means potentially missing the initial move, so focus on capturing the post-release trend rather than catching the first tick.