So we get this question asked a lot? How does news affect my portfolio? For most retail investors they mainly rely on news and news alone, which, can be dangerous. When we teach our Trading 101 workshops we go over live examples where news tends to be either false, or, late to the chart which is deadly for investors. My answer is always the same when we do get this questions: "Where is the price chart and are we in a PTA (Potential Trade Area), if we are, then it can certainly change how we enter our trade with risk".
Let's take a look at this in a live trade from our Options Instructor and Director in Canada, Ofir Varsulker. We can all conclude that news does have some affect on the markets and that affects changes our perceptions which in turn creates the move on the price chart. Recently on November 8th we had the US election which created a surge in financial stocks not seen in years. One of those stocks was Deutsche Bank (DB) which just a month ago was cluttered with 'doom and gloom' news. In fact, for us, this marks the second time we've traded this stock ahead of major news and made a great return (See DB Trade Long here from June/Brexit).
November 8th, Election Day - Stock Chart: DB
So the markets were dim for financial stocks, in particular, DB. The election results proved to rally these stocks and the entire market to where we stand now, ahead of FOMC, this Wednesday. The re-test of price on DB on 11/29 confirmed our PTA and then we saw another 30% move higher from there. Now the main thing we see as price chart traders is this: The news is ALWAYS priced in ahead of an event it's just that news tends to help the trade, which we'll take!
To the left is the position that was taken netting a cool $2,661. Now, you may then be asking why would he have sold? Again, in our opinion, markets simply move from zone to zone and ahead of this weeks current FOMC event on Wednesday, we expect some pull back on the markets. That being said, we want to take profits at these levels, then potentially look for a re-entry long after this news event this week.
This is consistent with news events from BREXIT this Summer to the Oil reports that come out each Wednesday. We just have to determine whether or not the news event will help our decision making process when we are in a PTA. So this brings us back to investing in the markets with a repeatable process that takes the 'well I think it should do this' mentality of it and puts on a systematic approach to managing risk in the markets.
To learn more about the markets, price charts and the products we trade enroll in a Trading 101 Class.