Many traders are always running behind news to understand the future course of action in market. With all the recent news surrounding Bihar Election and various economic reports and other market-moving news events that happen each day, it can seem overwhelming to try and keep up with them all. What’s a trader to do?
Simple and extremely effective; I ignore all of it. I tune it all out and it’s the most freeing and stress-free way you can possibly trade, not to mention it’s much better for your trading results and might even be the key to saving your trading capital
Have you ever noticed that a Stock Market will often move the opposite direction of what you thought after a particular economic news report comes out? Just to give few examples
- Bihar Election was negative Market rallied that day.
- FOMC did not cut rates in September and Market corrected.
- Earthquake in Japan leads to a rally instead of fall in market.
There’s a reason for this, it’s because people are the main driving force behind the markets and people trade the market based on their beliefs or expectations of the future. So much so, that once the news event or economic report comes out that they were anticipating, the price move based on it has already taken place. This is where the old saying “Buy the rumour, sell the fact” comes from.
Price action is a reflection of what is happening in a market right now, and it gives us clues as to what might happen in the future, real, actionable clues. The point is this; there’s simply no point in trying to trade based on how a news event might affect the market in the future, when it is affecting a market mostly before it occurs (now) and we can see its effect on a market via price action.
Trader should trade the price instead of imagining what a particular future news might do to market As discussed above By the time the future gets here, the news event will already have influenced price and there will be a new one the horizon that people are trading on. If you try trading news events as they occur, you’ll be late to the party and always chasing your tail. Stick to the price action as it reflects everything that is currently happening in a market.
One caveat here, that you might be wondering about; what about ‘random’ news events like surprise interest rate hikes or natural disasters, etc.? Good question, but, as we obviously have no previous knowledge to these events, we can’t think about how they might affect a market in the future, thus, all we have is the price action that they leave behind on the chart after they occur. Again, price action ‘wins’ and trading it makes the most senses. In these scenarios, you can wait for the event to unfold and then watch the charts for price action signals in the volatility that follows.