Q. Do trend followers use CNBC or other market news sources?
A. Never. Market news does not help a mechanical system trader or, for that matter, any trader. Price action is the only reliable source of information on what will happen in the market. All fundamental or external data that may impact a specific market is already reflected in the current price. In turn, trend following models apply quantitative analysis to the daily price data of the market being traded. However, most people persist in looking to other so-called experts for predictions and forecasts.
Think about it. How can CNBC be useful when you are using a mechanical system that incorporates trading rules and money management? If you have a 100% mechanical trading system that tells you when to enter, when to liquidate, how much to buy and how much to sell — listening to any news story for trading insight violates the entire concept of a trading system. Traders who are serious and successful at making money ignore the news.
News-worthy or News-worthless
If you’re using news on the web, on CNBC, in investment magazines, you’re wasting your time. Instead, save some time and check the price of your trades once a day. If you trust your system and have self-discipline, trading becomes more effective and efficient. An old Wall Street adage goes: Never sell on one day’s news. If you’re a trend follower, you’d change that to: Never move on news, move on price.
Ever ask yourself what forms the basis for this financial news?
Subjective Data: Economic and earnings information generally consists of highly suspect and outdated numbers kept by parties who have an interest in skewing data, no matter what they promise to the contrary. Even if the data isn’t already skewed, it’s constantly updated and changed with the next report. Moreover, as new administrations and managers take over, the agencies responsible for compiling and releasing these statistics are forced to overhaul the already meaningless numbers to reflect whatever the current administration/management wants to show about its own record versus its predecessor’s record.
Meaningless Comparisons: Quarters comparisons? The economic reports in the news are always based on an arbitrary comparison of one quarter to another, whether consecutive quarters or year-over-year. Why the artificial stop/start points?
Fear of Volatility: People who can’t tolerate the volatility of a single day of market activity, let alone of a single hour or minute, must consider whether they must be trading at all. The volatility of an hour, a day, a month or a year is what makes money. Up or down, volatility is the engine behind price movement.
If you want to keep your money and your sanity, you need to know what to focus on and what to ignore and all the information you need is in the price.
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