Business and Financial News and How It Affects the Market

This is a touchy subject and most likely one of the most controversial aspects of trading and short-term investing. (Not so much for long term investors.)

I won’t waste too much of your time on it though.

Bottom Line – it’s not worth reading the news! You will find so many different opinions it will literally make your head spin.

There is a popular saying, “Buy on the rumor, sell on the news.” Many people get paid way too much money to spread these rumors, start new ones and then pretend it’s news. (All adding to their pockets while the rumors set ablaze.)

If you think Hollywood is a bunch of gossipy circles, the investment world will make you want to vomit. The amount of ‘Experts’ in this field is ridiculous and all of them have completely different ideas, opinions and thoughts on the global economy, the stock market, on individual stocks and companies and anything else you throw their way.  At times, it’s very obvious they really love to hear themselves talk, regardless of what the topic is. There literally is no way to use their ‘blah blah blah’s’ as any help or indication to your decision making.

The rumors, the hypes, the ‘expert’ opinions always ALWAYS make the markets go whacky – short term.

So here’s what is recommended. Ignore it! (For the most part.)

Who the Business and Financial News Really Affects or Doesn’t:

LONG TERM INVESTORS – Six months and longer

Through my experience, if you are a long term (buy/hold) investor this shouldn’t even be something you need to worry about. I’ll give you a good example.

In 2008 there was a serious crash. Baby boomer’s portfolios were ‘wiped out’. A deep recession (depression) hit the world. Quite frankly, rightfully so, but that’s a whole other topic to work with.

So this is what happened. The crash came. Everyone went into a panic (panic selling) and they accepted their realized losses. However, people like Warren Buffet (the greatest Buy/hold investor of all time) HELD firmly and added and added to his positions.

Today – a mere five years later – the market is at an all time high.

Think about it. Most of these portfolios were retirement funds. These financially uneducated, hardworking people didn’t need to cash them in at that moment. They could’ve waited a bit longer and they would have easily recuperated their money if left untouched. But that’s not what happened.

What happened was – overblown news – leading to serious panic selling – leading to an economical crash – or plainly said – peer pressure of astronomical effects.

I know this is too simplified, but I too had money in the market. And I saw my portfolio literally go 50% down. But I thought to myself – do I need this money right this minute? NO. So why would I sell. I was confident in the investment choices I made and I sat firm. The news weren’t relevant in the long run.

SHORT TERM AND SWING INVESTORS / TRADERS– One week to five months

This is who the news affects most of all. In my opinion.

When some crazy news item or rumor hits the stands you can guarantee bad/good things will happen.

Let’s take the whole Goldman Sachs scandal. The stock tanked! Practically overnight.

But if you were a long term investor, guess what? Today the stock is back up to where it was before the craziness, if not higher.

News works great if you are playing the market with the news. This takes a lot of time, dedication and probably insider knowledge. By the time the public knew of the scandal with Goldman Sachs, it was too late the insiders already made a fortune on it either by getting out at the top or shorting it.

You can’t avoid these kind of bombs to go off, but you can monitor other news and work it to your advantage. Or you can sit tight and believe that the company you chose has a lot more to it than the Juicy-Scandal-of-the-month.

DAY TRADERS

The best way to avoid these issues while day trading is simply get out of all your positions when big news are about to come out. Obviously when Ben Bernanke is about to give a speech, you don’t want to touch anything until you see what the market is going to do. Lately, it’s been going straight down with his ‘encouraging’ words:)

Here are two sites that allow you to see the news for the day. The red and orange items are the higher impact ones and can seriously move the market during that time frame.  Meaning, you should’t take any trades ten minutes before news time. If you’re in a trade get out three to five minutes before hand. And then wait another three to five minutes before you start trading again. Also, filter out which country your market is ie: US, Europe, Canada, Australia, etc…

Forex Factory

Nasdaq Economic Calendar

How you play the news will come with your trading experience and also the route you want to go in. But always take it with a grain of salt.

 

Happy Trading,

Marina 'The Trader Chick' Villatoro

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