Traders are pushing and shoving for position in front of Jerome Powell's speech tomorrow. Finally, a little nervousness has set in as the opening gap-up was filled and the selling accelerated. Breadth quickly flipped from nicely positive to 2500-4500 negative. It is random movement that isn't predictive of anything.
My approach to a news event, like a speech by Jerome Powell, isn't to try to predict what will happen but to focus on trading the reaction. I may formulate a thesis such as 'sell the news' but I won't know what I am going to do until the news is out and the market starts to move.
There isn't as much glory in trading this way versus making a big predictive call but the risk/return ratio is much better. Too many market players think that trading is about predicting the outcome of a news event. The news media prefers to promote the most dramatic predictions and many pundits earn a living off one or two lucky calls. Big calls receive attention but they are seldom the best approach.
For the trader that slogs it out day after the day, the way to approach big news events isn't to make a big bet on a binary outcome but to focus on finding an edge as volatility surges after the news event. There is less risk and if the strategy is good there is better potential for gains. Often these news events lead to some quick swings and then trending action. It is imperative to be clear about time frames.
Once you see some evidence that the market is going to embrace your thesis, then it's the time to move fast and make big moves. It is much easier to enter stops and control risk at that point rather than in front of the news event.
I don't know what will happen tomorrow but I'm looking forward to trading the reaction.