Trading Quote #5 "It's not about what happens, but how you react"
Traders do not control the market, traders are simply participants following forces outside of their control in hopes of taking profit. Therefore it is essential to have keen awareness as market conditions develop. It is not about what happens, but how you react!
ASK YOURSELF HOW WOULD YOU REACT?
A very large bank is uncovered for fraud?
There has been a hack on a credit card company leaking sensitive consumer data?
The largest deposit of gold ore has been discovered?
A method of getting 50% more Miles per gallon is found?
Earnings missed expectations for an investment with no particular good reason?
A safe breakthrough drug making past treatments obsolete?
A drug in the market for the past two decades linked to ill health effects with prolonged use?
There is rumors that a company you invest in fabricated its product ability?
NOW WHAT WOULD YOU DO? All these are incidents that has happened or could happen. Are you prone to overreacting or under-reacting? How much credibility do you give each scenario? How long do you have from the incident and when adverse affects occur?
As you can see it's not about what happens, but how you react, unfortunately that means you'll end up with more questions than answers. One last thing.... EVERY CASE IS DIFFERENT!!!
-Millennial Mark
Hi, Millenial Mark.
I think one have to differenciate "the trader" first!
In my opinion many moves at the Stock markets are not caused by News at all. Institutional Investors and Bots do have their fixed strategy. Private investors may do their Orders based on News but they will not move the Market.
Furthermore lets take one of your examples, a Bank is uncovered for fraud. How low will the Price go? When will you exit you position? The same problem on the other side, there can be extremely good news but how can you tell when to sell? I would rather look for the technical analysis instead of chasing the news.
But like I said in the beginning all of this depends on the trader himself (long-term, short-term, day trader) and his/her strategy and mindset.
Myself I am constantly trying to improve myself but I am no professional by no means.
Thank you for your post this led my to think about news again.
I agree with you, this post resonates most with mid and long term traders. I only go into details when someone brings up a point as you did.
Back to the bank example. An uncovered fraud can immediately hurt the banks price, but leave all the other banks unscathed initially . Three months after an investigation and it turned out all banks had shady practices and all of the financials fall. This happens so much more than people realize. Remember Volkswagon emission scandal? Turned out many car makers used cheating devices. How about Deutsche Bank gold manipulation which ended up hurting several other banks doing the same thing months later.
Each and every case is different, and many times with scandalous news there is a waiting period till full realization impact prices and markets adjust (This goes both ways). Of course it is impossible to predict the exact moment. But if you can get a "feel" and fall into a profitable range you're good.
Also with technical analysis many trends in the graph can be attributed to sentiment during that span linked to news. Combining those two makes for a powerful tool. (Example: on a graph a stock is trending down. + It started with a missed earning report, and then doubts that growth can pick up). The combined indicator is more powerful than what the chart is doing or what the news is saying alone.
I suppose it depends on whether it's expected or unexpected news. Like is it a natural disaster that could happen any time, or a scheduled earning report that is due, but could go either way.
Unexpected news, always have emergency stops in place because sh1t happens.
News that could go either way,sell and buy stops above both the low and high of the prior channel with a smallish risk reward ratio. And not even OCO either as usually both get hit and win on both. But not very often though, try to stay out the market if it's scheduled news...