No More Trading Drama!

Financial news is constantly being released around the world on an hourly basis. The job of keeping track and monitoring these never-ending events is nearly an impossible task for an investor. Sometimes the managing those positions that may be most greatly affected by the potential volatility of data is the best anyone can do. The questions is, how should I interpret market news when I get it?

First, you need to be aware that news outlets can be driven to create a sense of emotional drama for their own business needs. Business news television programming is constantly reminding you of upcoming events to keep you engaged and watching the markets. They are driven by advertising, which in turn is determined by viewing numbers to sell ads.

Keeping you in front of the television is how they pay the bills. Most of the time, news is noise. That makes it difficult to concentrate and focus on a trading plan…

The truth is, most market participants don’t know how to use create better investment results. Because of the efficiency of liquid trading markets and an abundance of opinion on both sides, news is often factored in. Most of the expectations for a report or earnings numbers are conceived prior to the release or announcement. As a result, unless the actual numbers are significantly different than anticipated, price rarely reacts as much as you might expect.

Don’t get me wrong — having a large knowledge base of information isn’t a knock on your trading. After all, it can help you place current events in perspective and analyze the whole context of the markets. But it is very difficult to trade specific news information, even though it is a piece of the overall underlying driving forces of the markets.

Just be aware of how the news can manipulate your emotions. Just look at how quickly the news cycle flipped bearish following this sharp market drop. That’s because business news channels feed on investor fears.

The two sides of this coin are the fear of a market crash or the fear of missing out on a massive rally. Sometimes these fears paralyze investors and they are unable to act or react. They fail to protect from a draw-down and also to recognize potential situations of value for new investments. The cycle then comes full circle where financial fears cause investors to slink right back their favorite financial news network to get even more information…

Uncertainties will always exist in the markets. But the dependence on news to better understand market action can crush your returns. The answer is often to harness the energy from investment anxiety and incorporate money management and risk control into your trading.

While it may be impossible to eliminate the natural human tendencies, a trading plan can help provide discipline when learning how to interpret market news.

Keep it In the Money,

Alan Knuckman

Alan Knuckman
Editor, In-The-Money

Chart of the Day: Where will the S&P finally land?

Greg Guenthner

The market’s quick retreat continues this week…

You know the drill. When stocks get too hot, they can correct fast. The tech rout is picking up where it left off as the Nasdaq leaders continue to sell off and volatility is surging to start this holiday-shortened trading week. The Nasdaq 100 (the biggest of the big tech names) careened below its Friday lows and has already hit that 10% correction level… after tagging new highs just last week!

The Dow and S&P are holding up a little better than the Nasdaq so far this week, so we’ll see if that continues.

I know it’s tempting to try to lean short into these big gap-down moves, but I prefer to plan while other investors are panicking. I think that’s the best way to deal with the markets when volatility creeps back into the picture. Remember, volatility works both ways and you can see huge rallies in these corrective moves, as well. The market has its ways of keeping everyone honest.

It’s time to dig into the charts to try and find some decent looking support levels. If we can identify some potential landing areas, we’ll be ready when the market starts to firm up.

Here’s a look at where the S&P 500 stands:

SPX

If this is indeed a run-of-the-mill technical correction, I think our first important support area will be between 3,200 – 3,300…and these levels are fast approaching! If the S&P dips all the way to the June highs, that will be about a 10% correction…

If it doesn’t stop there, or rallies and fails, our next stop could be round-number support at 3,000.

Hang in there!

— Greg Guenthner

You May Also Be Interested In:

Your Ultimate Trading Checklist

Trading doesn’t have to be complicated. If you have a great system in place, you can simply wait for only the best opportunities on the market thanks to your disciplined methodology.

Alan Knuckman

Alan hails from the home of options trading in Chicago, where he began working as a clerk on the floor of the Chicago Board of Trade (CBOT). Beginning with his days on the floor, Alan’s worked with all aspects of the options markets for the past 25+ years.

Transitioning from a clerk to a floor...

View More By Alan Knuckman