Hello Rookie Bloggers! Today’s little diddy comes courtesy of the news media. I chose this topic today because I have recently seen a lot of news headlines that have solicited quite a reaction in the overall markets and I have had some questions, well maybe not questions perse’ but definitely perplexed reactions or comments come my way, and I felt that I should address this particular topic. So let us begin.
In today’s world, the little fella you see above is long gone and now we have more sources of news now than I think we have ever had. We are getting news from all the normal sources like TV and radio but nowadays we are also getting our news from Facebook, Instagram, and pretty much any other social media platform. The problem with having all this information readily available is that how do we know if it is true information or whether it is merely an opinion? With this deluge of information and no one to police its authenticity, this can leave us in a state of peril if we act upon this information without doing our own due diligence.
I remember watching a scenario play out in cartoons like Bugs Bunny where the young paperboy is shouting extra, extra read all about it and he was referring to some crazy event that was happening at that very moment and when the businessman comes up to the boy and buys a newspaper to read about that very event that the paperboy was shouting about and as soon as he looks at the front page he realizes he’s been duped because what he was looking for was not actually there and now the paperboy is nowhere to be found. It is this scenario above that I feel plays out so often in the stock market and the newer traders who haven’t built up their BS filters can get caught up in this stuff very easily. With the access to unlimited information so readily available these days and the profession of journalism having integrity struggles, the effect news can have can be devastating if you let it affect your judgment without doing the research to back up the source of the information.
There is an old wall street saying…buy the rumor sell the news, and we got a really good look at that scenario yesterday. If you are unaware, there was some news released on Monday that a possible vaccine for coronavirus was showing promise in its phase one trials. In this news, it stated some possible positive results based on an extremely small sample size were showing promise and that this vaccine candidate was going to be pushed onto phase two trials earlier than expected. This positive news definitely had a reaction in the overall markets and more so in the stock of the company itself. This should be good news as everyone wants to solve this global issue as fast as possible. However, there are now conflicting news stories surfacing that are saying the results left out some critical data that was needed to have a clear review of the actual results.
So, what does all this mean? Well, let’s say you read that news Monday morning and decided to buy that stock believing that the news was good and that it should mean a boost for the stock? Well, there are two charts below. The second chart is the daily chart and as you will see the last two days have seen this stock plummet on the so-called good news. The other chart is the intraday chart of the same stock and as you can see the stock peaked by 8:20 am on Monday and then proceeded south for the remainder of the session and then again the following day. Now, if you were trading pre-market and had heard rumblings about this news then perhaps you had a shot to get in on the initial blast but if you are just a regular Joe and you got involved at the market opening to the long side then you were probably very disappointed. Check out the two charts below and see for yourself how this played out.
I believe that most people would see some positive results as good news and believe that this should translate into bullish movement but as you can see it is not the case here. In this case, if you participated in this scenario after reading the news then you most likely lost some dough and hopefully, you were practicing good money management techniques and didn’t get hurt too bad on the position.
The problem with trading the news, in my opinion, is that we don’t have all the information and we only have what we can read and that doesn’t always show you the big picture and not seeing the big picture in trading can be devastating and therefore we must do things to protect ourselves. The first protection is practicing our due diligence, looking deeper into the story is always prudent and absolutely necessary as well. The other thing we must do is to keep our bets small so that even if we are wrong that we can still live to trade another day. This concept is called money management and it is imperative to a traders’ survival. This concept is so important that I will be doing a Youtube live presentation on this exact subject this evening, May 20th, 2020. You may not read this blog before the event but I encourage you to get over to the Tackle Youtube channel and check it out!
So, in closing be aware of the news but also be wary of its legitimacy and make sure you are diligent in researching any trades that you choose to do and in the long run this skill will increase your chances of success.