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Trading News: Is It Worth It?

Aug 17, 2007
Every morning just before the opening bell ring, every trader get their buy or sell button ready to make that first pretty penny before someone else gets there. The day is especially important because good economic news had just been released so everyone is anticipating a big profit day. This is a typical scenario in a day where either corporate or economic news comes out. Volume rush higher and higher to catch up with the news development. But is it worth (read profitable) for traders?

There are many books, trading rooms and advisory services teaching traders on how to trade the news but the truth is the vast majority of people lose when they trade news, particularly against the market makers, specialists and other traders who have been around longer than they have. Is it because of faulty technique? Is it the fundamental news, analysts getting their numbers wrong? Or it is the traders themselves that are causing these losses?

One thing that has to be noted is that during the news announcements, there are lots of excitement, anticipation and anxiety. So this atmosphere creates an emotional factor to trading. For those cannot control themselves, they let their emotions take over. These can be harmful to their money without realizing whats really happening. Others come in without any hard concrete tactics or safety nets (i.e. stop losses). While there are other who come in with a gambling mentality for next adrenalin rush.

Trading news has a 50% chance of winning, leaving the probability of a successful outcome is unlikely. But also the fact that with so much volatility, there isn't really a sense of clear momentum swinging one way or the other.

Most don't understand the mechanics or psychology at work in the markets. When the good news is made, the stock goes down. When its bad, the stock moves up. Taking the news at face value is obviously a losing proposition. No one knows when the price of stock has already absorbed the news and was now being unloaded by the pros. Even the positive surprise or negative surprise can be a real surprise when 30 minutes after opening, the stock starts going the other direction. Also, no one can be sure if the news has been leaked to cause the prices to do the unexpected and the insiders are now going the opposite direction.

If anyone who has traded currencies, trading news can be a handicap, especially with a broker who lock up their clients orders during news break. This is common practice (please reread the disclaimer as well as the agreement document form when signing up a real account. It will be very enlightening).

There are professionals who do well because they have clearly defined their plan, such as when to get in, when to get out, and when not to get in and when not to get out. They may have taken years to finally master these types of setups in this hectic market action.

Not surprisingly, news carries different meanings to different traders. The numbers in the end dont really mean much because consensus is made of a group of high-profile analysts but they don't necessary represent the opinions of thousands of traders and institutions who put their money on the line. They vote with their money to give their opinion of what the piece of news meant to them. Some find it is a bargain and buy more, while others find it is too expensive so they sell. How does anyone know what expensive or cheap is?

Whether or not trading news is profitable, only time will tell for each trader, but one clear advice from this is NOT to hold a stock before earnings. By holding through the earnings, it's a guessing game. If he still likes the stock, by it back a few days after the earnings. Who knows it might have been oversold and now it's a bargain. Of course there will be regrets if the stock does move in the desired direction. It's down to 50% chance: way or the other. But who want to gamble their hard earned money away so easily after sweating so much to get it?
About the Author
Larry Swing is the President of the popular day and swing trading site http://www.mrswing.com/ a place where you can find free daily articles and videos covering education, market analysis and picks from Larry and other well known traders in the industry.
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