Does News Create Risk or Opportunity?

Published by Sharekhan Education | September 7, 2022

By Fahim Ansari |Sharekhan Education

Does News Create Risk or Opportunity?

At any given moment, a vast amount of financial information is being produced and transmitted worldwide. This data can be in the form of financial results from the company, news, income statements, analyst assessments, economic reports, etc. When this information is made public, each person’s particular belief system shapes their thoughts and perceptions in distinct ways. The fact that most people assume other people’s belief systems to be identical to their own is one thing that is deadly over here. Of course, this is undoubtedly untrue. As actions follow beliefs, trading and investment actions are purchasing or selling. Every purchase or sale is made at a specified price. Hence, the only thing a continuously successful trader and investor must concentrate on is price. Adding any other information will distort your perception of any given market’s supply/demand reality.

These details entice one to take action (buy or sell) in the market. One action is a deception that will trap you on the wrong side of the trade. The inverse action is an opportunity that puts you on the winning side of the trade.

To be successful, you must have the skill set to recognize the difference between the trap and the opportunity! We at Sharekhan Education strive to develop the necessary skills to distinguish between a trap and an opportunity.

The news acts as a catalyst for novices to enter the market, which is their only tool for making buying and selling decisions. In other words, the news is essentially a trap for traders, who frequently lose money as a result.

Why is news trading bad?

1) The basic data or numbers are always late

For instance, the corporation today announced its earnings for the prior quarter.

2) There is no assurance that the data is entirely trustworthy.

e.g., Satyam

The reports are not quantifiable in any way. It is impossible to predict whether the stock price will rise or fall. Sometimes a company’s quarterly results are good, but the stock suffers. Given a report, predicting the magnitude of the move is impossible. Magnitude refers to how much the stock could rise or fall after the information is released. You may have seen small market moves when the reports were spectacular, and big market moves in significant numbers.

Data is delayed. In general, traders access news on websites. Because these websites are updated after the report has already been released, they are generally late in splashing the information.

It is said… “Big money gets the data first” Institutions have access to extremely expensive real-time data, allowing them to trade before others. They have access to advanced software such as Bloomberg and Reuters. They start the move, frequently followed by retail traders who access the report late and see the price moving already.

This is a very lucrative technique for the institutions, as they watch the price return to whatever supply or demand zone (Buying And Selling area) they had established long before the report. Due to the news acting as a catalyst for the price to return to the zone, they can fill their remaining orders at that level while earning a profit.

Conclusion:

In conclusion, the markets are thought to become extremely dangerous during the surges in volatility caused by news. This is undoubtedly true to a certain extent. These situations might cause a great deal of suffering for traders who don’t comprehend how the markets operate and impulsively behave in accordance with their feelings. Contrarily, successful traders are those who have a tried-and-true method for taking advantage of these spikes in volatility.

To know more about trading concepts visit our website www.sharekhaneducation.com or attend our free workshop.

By enrolling in this stock market course, you can learn the various aspects of trading in Futures and Options .