Aside T/A

[BeM]

Hi,
Here is the chart for S&P 500 for five days, nothing sophisticated unfortunately, just from Yahoo!
I believe in Technical Analysis quite well but I also believe that the news and their interpretation sometimes is much more important than T/A. Technical Analysis is great to sort out the market sentiment in general, e.g. where the market would head if there were no dramatic change in the economic or political news. However seems to me the best way to make profit is rather by analyzing the economic and political news rather than technical analysis, but nevertheless sometimes it's the other way around
Look at my actions in the past few days: On Wednesday I bought at 919 just before the beginning of the trading hour, a sort of a gamble but I had planned to do another trade after ten o'clock when the economic report was to be released. After its release it was encouraging so I bought again at 930. I liquidated both at 940. I didn't trade on Friday because there was nothing to move the market except the terror attacks in Kenya, the market went down a bit. On Monday I sold short at 10 o'clock after the economic report and my software went down so I recovered only after making 2.5 points. On Tuesday I sold short again, because of the bad economic news again, and ...as you know... my stop-loss killed me. Today I did nothing.
So, what do you think, which is more important, the political and economic news or technical anaysis, or ...?

 

[ChartMan]

Stay out of trading when economic news is due out. It's a surefire way of taking a BIG hit, especially if you are on spreadbetting. Luck may win you a couple, but being the wrong side will make you cry. I can't see news being a more important attribute over TA....Most ( if not all) the news is in the price. Transient news effects ( Plane hits Milan building) in general, recover to status quo ( if you have the bottle to hang in there and your pocket is deep enough).
Here's the day in question from the archives (dow intraday).

 

[BeM]

But ChartMan... it takes some...time for the news to get in the price. If you interpret the news immediately in the right way you can take the adjustment of the price in your favour, however very truly you can take a big hit if you interpret it in the wrong way, right! There was a time, and I remember it so well, when I interpreted the news in the wrong way, and I paid for it. But these times it wasn't luck at all, it was the true interpretation of the news, mostly encouraging ISM. Today, there was the encouraging ISM but also many downward company news and none of them was really dominant over the other, I did nothing because of that.

 

[Skimbleshanks]

I'm just not clever enough to interpret the news - that is where the danger lies. Who is little old me to decide that I can pit my brains against the best on Wall Street and around the world? I'd be stupid to believe I could, so I don't.

Economic news is virtually always in the price. News news (ie catastrophic world events) is different and a great opportunity to trade well.

I don't have any news sources on my monitors, and no sound news (radio/TV) because they are all just a distraction.

On the price bars I see it, and I trade it.

 

[options]

Agree with Chartman/skim on this.
Read Farley's rules on news. The Welsh Wizard has the news turned off during his trading day. And a lot of traders do not listen to the news, they have no need to. It will be reflected in the chart.

Your just starting out Bem and been lucky with most of the news 'calls'. As it goes on you will see/hear some news and say 'Ah, this will make the market dive/rally.' And then act accordingly, and finally sit there looking at the screen and wonder why the chart is not doing what it should do and you are x amount down.

The only news that will move the market in a big way is the stuff like 'plane crashes into world trade centre'

You might even be lucky enough to get a trade on before the brokers/spreadbetters pull the plug on the phone/'net connection, and you can't get through. If you happen to be stuck in a trade the other way...
Have a stop in place? No problem. Unless it's a guaranteed stop it will actually get triggered at nowhere near a price that resembles anything that will keep you out of the poor house.

All of the normal news about companies (unless it is really bad) will already be in the price and it will leave you chasing crumbs.)

I Read the book that Flea put a link to about Mr Livermore. In it he mentions that the San Franciso earthquake saw him being short, while the market held it up for 3 days or so before crashing.
In other words it took those 3 days for people to fully realise the implications of such a disaster.

Bring it forward to today. (Twin Towers) and it took 3 minutes for people to realise.
(And there is always a problem getting through to trade.)

I used to trade on company results... untill I got hammered.

Oh, (from another post) if you are using a stop of a few points with fins on the S&P. It's not enough.

Options.

 

[BeM]

It's absolutely true that trading a specific stock, the news is always in the price. I have no doubt about that and this usually happens because of the market makers. Trading company stocks relying on taking advantage of sudden news is probably something dangerous. I studied some stocks before and after the news release, it's not really like it was during Livermore's time but not very different either, sometimes the news is in the price even before its release, why... insider trading! I don't know but happes quite often, probably depends on the company as well.
If we talk about indices it's totally different, there is great opportunity in interpreting the news, this is what I've always been doing, sometimes I was wrong and I have to enhance my skills. The reasons I get burnt are because of not choosing the right time, stop-loss, sfotware etc. and much more importantly psychologic things
The news affects the market throughout the day, even the effect remains for some days after if the news is so important. The reason is simply the resistence of the investors and traders to get in the trade, sell the stocks they have or buy what they don't. This resistence usually submits to the strongest side but it definitely takes time and interpreting the news in the right way is difficult but a fantastic opportunity. I have CNBC, it's not the fastest tool to get the news but it's not so bad. On Wednesday there were just too many confusing factors affecting the market, I didn't decide which one could take over, the encouraging ISM or the company downgrades etc. but probably because there is a bullish mood in the market we didn't see much a fall at the end.

 

[dsmodi]

some time in the last couple of months there were 2 pieces of ISM data out - manufacturing and non-manufacturing - and they come out separately, one a week after the other.

I can't remember specifically which one did what, but I do remember that the first one to come out was quite weak, so I expected the market to tank. But what did it do? Yes, it rallied!

The following week, the second ISM data came out, and this was better than expected, so I expected market to rally. But it tanked!

Apparently, the weaker data prompted wall street to expect a rate cut, hence the rally. Vice versa for the stronger data.

Now, that is easy to analyse in hindsight, which is always 20/20, but at the time ... well you can fill in the blanks.

Moral of the story is... well you can fill in the blanks

 

[BeM]

I remember so well the Friday I got burnt just because of that, the rally after a weak report. But I have to admit that it was my mistake and misinterpretation.

 

[Skimbleshanks]

BeM - you said "If we talk about indices it's totally different,"

I say "Oh no it's not."

 

[BeM]

Today we had the unemployment report which was great but ... as it proves to be so far, and looks to continue for the rest of the day, we are seeing a downfall. This is absolutely because of Technical Analysis, it went up too much, there was no support, and it's giving it all back. So I agree that T/A is very useful and essential but it also depends on the timing, the positioning of the market etc.
About the difference between indices and stocks... you may be right, debatable. I don't have any experience in stocks.