Bad News: Negative Headlines Get Much More Attention
I read an article few months ago about how different news channels and media outlets use negative words to grab your attention. If you think about it, why not.. it works !! They are in the business of selling their product which is ‘News’. Human nature is to pay more attention to something that is wrong or negative. And news outlets do a pretty good job of exploiting it.
The news related to world financial markets is no different. Here is a title of a recent article that got published on cnbc.com (a leading financial news website).
The article had nothing extraordinary about it. In summary it was more of a question to a reader than telling them anything insightful. However, I clicked on it. That is all cnbc wanted me to do. Click…so they could show their advertisers how much engagement their articles provide. This is how they sell their online space to companies that want to advertise. By showing these numbers which is also referred to as ‘click through rate’.
As a technical trader, I believe all the news, events, and information that exists out in the public for any particular publicly traded company, the stock price reflects that information. Market participants also refer to it as Efficient Market Hypothesis. The thing is we as humans and to be more specific, traders, have a very short-term thinking span. Stock price don’t go our way and we start panicking. Don’t talk about anyone else, just take myself as an example. When the account is red, my mood is off, lose my appetite sometimes, don’t want to talk to anyone, and the thing I dislike the most is reading CNBC headlines that go against my analysis.
When Fear Takes Over
Someone who is long the market, does not even want to click on anything that is negative. The reason is that it will mess with your head even more and may impact your trading. On the other hand somebody short the market, would probably love to read it and even distribute to his or her friends.
A trader is somebody who manages risk and exposure, has enough access to capital, and is quick to read the tape and act. There are few general rules that all traders can abide by to stay in the game for long. I am sure you can find them on the internet, but here are few you might like:-
· Put the dollar amount or position size you feel comfortable with in each trade. You will sleep well at night.
· If you must average down, do it at next price support (or resistance if you are playing the short side)
· Stick to a technical indicator or pattern you are good at identifying and trading. Don’t have to be a Master of all trades.
It is easy to blame others, but not yourself. So be a smart trader, and do not act emotionally. Peace of mind and firepower (trade capital) is a very powerful combo that every trader should have access to.
