Rumour Buy Or Sell News In Trading
You might think it’s risky to buy something based on rumours and then sell it when new information comes out. But if you do it in the right way, it can be a smart move. People in most markets, especially financial markets, say, “Buy the rumour, sell the news,” which is what people do. Traders sometimes use this idea to come up with a trading strategy that draws on what they think will happen in the long run.
Assume that an economic report or world event will change the price of a certain asset in a certain way. You buy an asset when you have this instinct, and that is called the rumour phase of your strategy. When the event is over or the report comes out, the news is out there. Once they’ve sold their positions, the market moves.
It is best to profit from a news event by buying into a chart early, when the news is not yet priced in, i.e. when it is still just a rumour. Second, the best time to lock in profits is to sell as the news breaks. we have to decide Rumour Buy Or Sell News.
Early on in the news cycle, before the news becomes fully priced into the chart, the risk/reward ratio is best. As everyone knows the news and has a high chance to buy into the chart, the reward is much smaller.
How does “Buy the Rumor, Sell the News” this work?
In general, investors who use this strategy tend to look for markets that aren’t being sold for what they should be. “Rumor,” on the other hand, is when possible news or information suggests that an asset might make more money in the future. People say the thing will be worth more in the next few weeks or months. In the long run, investors will buy that asset up to the point where it is no longer a good deal.
A sell-off will happen if the rumour is true, or if the market has already bought too much of the asset so that it is no longer undervalued. To keep its value, the stock must have a surprise news event that comes out that is better than what people thought. If a surprise news event is good enough, it could make the value even better.
Why Buy rumor and sell the news
When a rumour of news begins, a typical “Buy the rumour, sell the news” chart will show that the trend will begin soon after that and the top will occur shortly after. People following this event take advantage of news to make profits from the news event.
The saying applies to a future news event that’s already known and expected. It does not cover events like terrorism, natural disasters, unexpected monetary policy decisions, or black swans that occur suddenly.
In an environment where rumours are priced into a chart, money can be made, but when the news is mainstream, it’s time to sell. Profits are maximized by buying early in a news cycle and selling into the event itself.
As one example, the recent DogeCoin chart shows the run-up started on April 14th, 2021 when Elon Musk began tweeting about DogeCoin and ended on May 8th, 2021 when Elon appeared on Saturday Night Live and the news cycled to its full conclusion.
Buy the rumour, then get rid of the news.
If you’re a trader, one of your big frustrations is buying something you know to be strong, only to see it lose value in a sell-off. There are many reasons why this could happen, but it could come down to differences in the way traders process information.
In that case, one trader takes time to digest the news before making a trade, while other traders act quickly as soon as the rumours come out. Traders who are slow to act often provide liquidity for those who are in the know. Those traders then take advantage of either the “rumor” or the “news.”
How do you learn to trade the news?
Trading the news can be difficult, and the price won’t always move in a way that seems logical or connected to the underlying news event. To get good at it, you should always trade on paper trading first. Practice buying rumours and selling the news until you are certain that you have a consistently profitable strategy.
The Bottom Line
For traders, one of the things that drives them crazy is when they buy something that they think is going to be strong only to see it lose value when other people start to sell off of it. A lot of things could be going on that would make this happen, but it could be because of differences in how traders process information.
We have to react smartly to financial market news. We always have to cross-check all the news and then trade accordingly and take benefits from the news. Sometimes news works sometimes not.