I never trade news. Liquidity dries up and you WILL be slipped. What is the "strategy"? Place a buy stop above and a sell stop below? Good luck because you are trading against the Algo's colocated at the exchange. To me it doesn't make any sense considering in any given day there are plenty of other opportunities.
I'm not sure what you're trading or what type of news you're talking about but I've never seen liquidity dry up on any of those KMEs I mentioned. Instead, I have on a few occasions seen liquidity lower but then suddenly pick up again in a reaction to one of those key market events (KMEs) and on other occasions the liquidity just stayed the same. Simply, overall the liquidity and volatility has increased...sometimes producing a trade opportunity. Other times there's no trade opportunity even though liquidity and volatility has increased. I myself have only had little problems here and there with such such as when I'm in the middle of a trade and a KME sneaks up on me (I didn't know there was a pending KME). Anyways, I suspect you're viewing this differently than what others are viewing because there's different ways approach KMEs and news is just one type of a KME. Thus, you're right, on any given day there are many different types of other opportunities mainly because there's different types of KMEs. Like I stated before, you gotta know your trading instrument because some key market events have no impact on your trading instrument while other types of key market events do have an impact. For example, unusual grain reports will impact grain futures while not having any kind'uv impact on Crude Oil CL futures. In contrast, many other types of markets are globally connected. Thus, certain types of market news out of China will increase volatility and liquidity in the Emini futures, Eurex futures and many other key markets. Anyways, like I said, most using key market events are probably using it with chart analysis or DOM analysis...for day trading.
I trade the 6E futures. You mean to tell me you never see the limit orders pull to less than half the normal quantity before an important news release? That's usually when I have an "oh shit" moment; when the DOM gets thin. It means I forgot about a news release.
There's many ways to watch changes in liquidity and you monitoring limit orders is just one way although not something I do. Therefore, I'm not a DOM trader or someone that uses the DOM to make trade decisions. My "oh shit" moment is when volatility suddenly dries up in what ever I'm trading and its spiking in other key markets I'm monitoring at the same time. Thus, something is about to happen in my trading instrument very soon (within the minute or seconds).
I am an intraday trader and ONLY trade one instrument (6e). I don't know why relevant news would cause "volatility" to spike in one market but dry up in another. Seems to me news is released at a specific time and if it is to have an influence on a market it would happen right away in ALL markets. ANother question. Isn't "volatility" just another term for low liquidity? The fewer limit orders on the book the quicker market orders can move the market.
I too only trade one trading instrument at a time but I also trade other instruments when I start to see something consistent (many weeks) that I don't like in what I'm currently trading. Simply, I'm not married to what I trade. I'll switch to something else whenever needed. Some key market events have an impact in many markets (not all) and other key market events have more or less impact in other markets. Volatility and liquidity are not the same. Its common to see a trading instrument that has high liquidity but have time duration during the trading day with low volatility. Those are times when liquidity and volatility are not working together...resulting in very few or no trade opportunities and the price action is moving very fast up and down (very similar to fast chop) but stuck in a very tight trading range. In contrast, something that's very liquid and then has normal volatility to high volatility...that's when things gets very interesting and not a good time to take a toilet break.
I disagree about liquidity IN THE FUTURES MARKET ONLY. The more limit contracts at each level the less volatile the trading will be. Compare CL to ZB. CL is extremely volatile due to lower levels of limit orders. The ZB moves like molasses due to large quantity of limit orders at each level. In my view high volatility is a direct result of reduced liquidity particularly during news releases. Watch the DOM on CL today when the report comes out. Bottom line in regards to trading news is that volatility is going to be extreme due to the order book being very thin prior to the release and several minutes after. That's why we see the wild swings after news. I never trade the initial reaction but sometimes will get in shortly after.
I can not agree or disagree with anything you say about limit orders (DOM analysis) at particular levels considering I do not use such in my trading. As for key market events that cause reactions in the price...it doesn't matter to me if the volatility is extreme (high or low) and liquidity (thin or heavy). Only thing I need to see is a change in the volatility and liquidity. If that happens, I wait and see if there's a trade signal. If a trade signal appears, I'll trade it. Yet, if there's no trade signal even though there's a change in volatility and liquidity...no trade. Simply, I usually trade the initial reactions but only if it produces a trade signal. Yeah, I know Crude Oil CL futures very well...for almost 20 years now. Its one of the key markets I monitor very closely. Once again, volatility and liquidity are not the same. There's plenty of online articles about such that can be easily read on Google without me needing to explain why. Its usually a popular topic among PHd students and research institutions which is why there's a lot of research articles by them about that topic.