How News Affects Crypto Prices

News trading is a strategy when traders are making decisions based on crypto market events and news that can positively or negatively affect asset value. In this article we’ll discuss how this strategy works and how to use it to your advantage.

What is a news trading strategy?

It might look like one of the simplest strategies on the market. It requires only two actions from the trader:

1. To buy on good news. Good news will more likely attract the attention of other market participants and give investors hope for growth. This means that after the release of good news for some asset, its demand will increase, and prices will go up.
2. To sell ​​on bad news. Bad news works the other way around. They show us problems of some project which increases the risk of investment. Many traders would like to sell risky assets or at least reduce their share. Due to that, prices will go down, which means that you need to sell before the price collapses.

Sounds easy, right? Problems arise when we’re trying to put this strategy into practice. You have to find sources of the news, decide if the information is good or bad for you, understand the importance of some event and make moves before anyone else. Not so simple now, isn’t it?

What news to follow?

Some of these issues are technical or organizational, and we will analyze them in more detail below, others require a basic understanding of crypto market processes. When it comes to news trading, it is impossible to use patterns prepared in advance, you need to evaluate the market state based on news, your observations and experience.

There are several categories of news that will help predict the price movements of a particular cryptocurrency:

• Project announcements;
• Presale offers;
• Political events;
• Economic events;
• Announcements of investment funds;
• Actions of whales.

Sometimes the market can be influenced by seemingly unrelated events. For example, a flood in a country with a high concentration of miners. But since other traders rarely follow such news, its impact may be delayed.

All news should be divided between “good” and “bad”. It will help you figure out if there is a chance of pumping or dumping. Sometimes it's easy to place news in a specific category, sometimes it's more difficult, sometimes they may not cause a market reaction at all. Let’s take, for example, one of the biggest bullish news of 2022 – the Ethereum Merge. The Merge should have raised the demand for ETH. It took place on September 15, and the Ethereum price immediately went up.

Where to get news

Any news trader has his own special ways of finding incites. Basically, all you need to do is to choose suitable sources of information and create one information system. There will be no problems with finding news if you have the Internet and a laptop. The main news sources are:

• Social networks. Twitter, Medium and some Reddit threads are your best helpers. Twitter is usually the first or second source of news for any crypto project. Between the publication of an announcement on a social network and its mass distribution through news sites, it can take from several minutes to several hours – this is your head start.
• News aggregators. For example, Cointelegraph or Bloomberg. Working with news sites requires more time for “filtering”, but the information might be fuller than on socials.

Characteristics of news

There are some factors that investors should take into account while news trading.

1. News relevance. On the crypto market they say “buy on rumors, sell on news”. The main rule of news trading is to learn about the event before others.
2. Past events. It’s important to analyze previous events of the project before doing something. For example, there is news about a partnership of some project with an exchange. But last week, this platform froze withdrawals – it’s doubtful that the token price will go up even due to the new partnership. So don’t make a move based only on the latest news.
3. Market sentiment. News can work differently on bullish and bearish markets. In a bull market any good news can create a big pump. But the same news in a bear market may not attract traders' interest at all.
4. Wrong predictions. It’s easy to make a mistake in your calculations, so be careful. There are many other “hidden” factors that may influence price of assets, like whale moves or even some global environmental disaster.
5. The specifics of different communities. To understand how the price of an asset will react to the news, you need to know who exactly forms this market and what these people will think about the news.

All these nuances make it difficult to properly use the news for trading. So please, be careful with your trading strategy – don’t forget to do proper research before making any moves.

Conclusion

Good news is often a signal to buy. It increases demand for the asset, which brings us to higher prices. Bad news, on the contrary, tells us to sell. In the crypto market prices are moving more actively than on the stock market, and it is very sensitive to information flow. That gives opportunities for traders who follow the news and are able to predict their impact on the market. However, don’t forget to do a good check before starting trading.