Posted: 15 month(s) and 15 days(s) ago   |   0 Comment(s)   |   Rating: 0 0
Posted by: fbutera101

No News Is Good News?

So how should news enter into our market homework? Well, I probably have a very different view than most people you've spoken to regarding news. To be honest, I HATE news. I hate to pay attention to it. I hate to follow it. Honestly, I just hate it. Now, I know news is important. News is the driver of the market. News is what alters the market participants' perception of value, which is what drives pricing shifts. Is it THAT important, however, that we should hang on every little news announcement and alter our strategy because of it? My personal answer is NO.

The main idea behind auction market theory is that the market should give us a road map as perceptions in value change on a day-to-day basis. If this is true, we should see that perception reflected in market structure as an interpretation of the news. Why try to interpret the news ourselves? Good news can sometimes affect the market in a bad way and bad news can affect the market in a good way. Trying to interpret it all seems impossible to be able to do consistently over time. So, I try to avoid dealing with news completely.

What I do with the news, however, is keep track of things on a macro level. I want to know what news the market is currently caring more about these days. What news should give more of an impact on price? This can change on a moment's notice so it's important to make note of news reactions that you see during the day. Hence, adding it to your homework can be important in identifying these trends.

I like to look at the news reports that are due out for the day and make note if any of them SHOULD be important. I don't want to take positions because of them, I just want to know if I should be aware of game-changing news that might hit the market. Again, it's not my job to interpret it. I let the market do that. I just want to be informed on a macro level.

Another important thing to note is that I do not subscribe to the belief that you shouldn't trade around news reports. So many professionals say not to trade in the first 30 minutes or not to trade before a news announcement. I think that is pure rubbish. The best trades occur when you have a position into the news and the news drives the market in your favor. What's the worst that happens in this scenario? The news pushes it against you? Your stop gets hit and you lose what you would have lost anyway. What happens if the news drives price in your direction? You'll probably make out a bigger winner than you might have expected. Doesn't it make sense, then, to take the trade and let it pan out, regardless of the news?

The one news announcement I refuse to mess with, however, is the FOMC news. I won't even watch it. This is a personal preference. The winners are nice but the losers can really sting. I guess I just have some bad memories. :)

So that's basically it on how I view news. I want to know what's going on in the world and how the market is affected by it, but I don't want all of my trading decisions to be based upon it. Auction theory should generally keep me on the right path over time if it actually does what it's supposed to do. If I follow the news, however, in a big-picture way, every so often, at various points of market activity, I may be presented with the incite to take bigger risks when appropriate and protect what I have when I should.

Until next time.

Frank Butera

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