News-driven algorithmic trading

There is an article about algorithmic trading in the latest issue of the Economist magazine, where it says that one-third of all stock trades in the US are due to algorithmic trading. This should not surprise us. What is more interesting is its mention of the electronically tagged news products that are coming out of Dow Jones and Reuters, which purportedly enable computers to buy or sell stocks immediately upon the release of a news item. The data suppliers regard these news products as some kind of secret high-tech weapons: "Dow Jones claims the business is so secretive that it cannot divulge details of customers." Is this hype justified?

Actually, to get a taste of news-driven trading, you don't need to pay a hefty fee to buy one of these products. You can just monitor the regularly scheduled economic news release (consumer confidence, new homes sales, crude inventories, etc.), trade the relevant futures, and proceed to make millions.

The fact that most of us who monitor these economic news releases haven't yet made our millions is an indication whether these news products will help you do the same. The information contained in the news is often difficult to interpret. Even the initial price reaction to the news may be wrong, leading to swift reversal after an apparent initial trend. And finally, what's wrong with scanning for sudden price movemenets, and then check for possible news to confirm that the price movement is due to the release of new information?