Education - Articles - How To Trade The News
Ben Shalom Bernanke, Chairman of the Federal Reserve
Here is another example of how the news can inadvertently get it wrong:
Mr Bernanke, the Chairman of the Federal Reserve Board of Governors, emerges on live television and presents what seems to be a bearish statement; the market falls sharply in response to this news. Financial news presenters appear grimaced on television, reporting the ‘facts’ as to why the market has ‘crashed’ today:
“The stock market crashed across the board today, on negative statements made by the chairman of the Federal Reserve.”
To add to the impact and drama of the announcement, any other negative information is contorted and construed to support the narrative.
Inside The Loop
So why is this news announcement probably leading you off course and impairing your trading? For the reason that had the news team been inside the loop, this is how the news announcement should have been reported:
“The market has fallen alarmingly today. Bearish statements made by Mr Bernanke, the Chairman of the Federal Reserve, caused the Smart Money to auction the market lower rejecting previously established value, in a manoeuvre to discount the negative news. This had an effect on weak holders and uninformed traders, causing them to panic sell their holdings to commercial traders, who have been waiting for this opportunity to buy at lower prices below value.
Professional traders, who all usually belong to an inside track syndicate of one form or another, were informed regarding the forthcoming press release well in advance of the announcement, and were ready to absorb a huge amount of inventory. They stand to profit handsomely in the days ahead, as a result of this successful and expertly timed operation."
Do you have to avoid listening to the news altogether? No, of course you can listen to the news, but always ask yourself, "Have professional traders used this news to auction the market either up or down, as a profiteering manoeuvre?" As a trader, you would be well advised to view the news and news announcements from a new enlightened perspective. When you see or hear a story, assuming the story appears to be factual and you believe it is of relevance, you will be wise to reflect upon the following three questions:
- What is the impact of this story in the overall context of my PMA?
- Can I use this news story to better my own trading position?
- How can this story be used in a manipulative way by other traders working against my interests?
News Television: the drug of a nation
A significant part of the problem is that you have been indoctrinated from a very early age as to what are the ‘trusted’ sources of news to the extent that you are now very receptive to those sources regardless, almost like a mind bending narcotic. When you first enter the trading arena and still a little 'green', you will naturally think it will be helpful to you in your trading activities if you keep abreast of the financial news; by having one of the flagship financial news channels streaming live breaking news out of a miniature browser window on your multi screen setup, enthusiastic to assimilate information, and be well informed of current affairs. This is somewhat TOLERABLE only if you remember to read between the lines. If you cannot remember to do so and can admit to yourself that you lack the mental discipline, then turn it off, although I say this knowing that you are likely to find it extremely difficult to do so.
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