How to Technically Trade the News
“Don’t trade the news,” they say.
You’ll lose money. But the “experts” have it all wrong.
Trading the news is a seductive trap for those who aren’t in tune with major stock market trends. They don’t realize that in most cases, the market’s already baked the news “into the cake” by the time it’s reported.
Interesting. But wrong.
The argument is ancient, taking into account efficient market theory, which is flawed. It never accounted for information friction. What you may learn about at 8am, thousands of other traders may not learn about it until 8pm. Plus, it never accounted for the way we received news either.
News just doesn’t hit its fully intended audience at once. It never did. In today’s world, we get our information from multiple online sources, too. It’s impossible to argue efficient market theory with that.
Plus, any one ignoring the phases of a news trade is missing out.
A few days before Amazon’s dramatic surge a mysterious pattern appeared. It was just spotted
again with two BIG stocks. Their names are (Continue…)
First, there’s anticipation and dissemination of news. For example, on June 5, 2017, we highlighted two opportunities that we anticipated could run higher on anticipated news. That news was a coming announcement from President Trump. We knew that once he began to pitch his $1 trillion infrastructure program in June, related stocks would rise.
And they did just that. Vulcan Materials ran from $124.50 to $132. Jacobs Engineering ran from $51.68 to $55.37. Any one that ignored the news impact didn’t see that win at all – their loss.
Then there’s the death of news.
Once all of the news is out and priced in over days – not seconds – a stock can become either oversold or overbought following the exciting momentum. Sadly, this is ignored, too. But again, let’s look at VMC. Following the momentum, the stock became stuck at double-top resistance with reversing RSI.
To us, that marked the death of news flow. It’s at that point when you want to take your gains and move on. Or, you can even short the stock following the run. Using the news along with technical analysis is how real money is made – real fast.
Then again, the “experts” don’t think this works.
But then again, many don’t believe in thinking outside the box.
Interestingly, a pattern sometimes appears with high quality stocks, signaling a potential large breakout even before news is reported. Click here for the report on this mysterious pattern.