The power of news

Just how important is published news to a serious trader or investor ?

Although the zillion year old mantra about "buying on rumour and selling on news " is still
an important guide many novice investors sometimes get too carried away and without hesitation instruct their remisiers to sell the moment a write up about the chosen stock appears in print..
 

Imagine an investor selling off GOB  ( formerly Equine ) today after a fairly interesting write up of this
company appeared in the weekly Edge ,The counter moved up more than 10% and closed up at the high
after the news and not before.

Under the Price Action Technique, news flow is an important variable of stock trading and one only needs to know and decipher the different types of news flow to trade profitably . It would be sheer over generalisation to conclude that the counter price will collapse the moment the rumour becomes news. Obviously a counter which has moved up a lot based on rumour before the news disclosure (possibly due to a combination of insiders and speculators ) would encounter heavy profit taking ,sometimes even overshooting on the down side if the news is not up to expectations. Conversely interesting news flow which surprises the market and where little activity is detected before the disclosure may result in the counter reacting positively.

A market player should learn the intricacies of the published news.Does the news give indication of new growth and if so ,is it in the short ,medium or long term..Change of shareholders may give rise to more exciting developments for the company...Multi million contracts conversely may have little or no impact on share price if the margins are small and business risk high. Likewise a MOU no matter how "juicy "  it may sound is just that,a Memorandum Of Understanding...Related company contracts should also be carefully scrutinised ..it would be helpful to understand simple accounting concepts like transfer pricing ,goodwill amortisation ,deferred taxation writebacks and so forth...seek professional help when in doubt....   Like they say better be safe than sorry...

Thank you

Chris Choo

http://traderight88.blogspot.com
chrischoo007@gmail.com