Trading big news

[cmmichaels]

Hello,

I was wondering how many people here trade big news stories such as the one that has just come about with BSKYB?

I think from what I read most people here trade TA but when something like this hits it is almost guaranteed that the stock is going to drop a considerable amount even if UK Shares are not what you trade how many people get in a position on the back of something like this? I have a microscopic trading account but I think if I was in a position where I had a fairly large account and say I was trading a different product like FX if something like this happened I would just throw the 1% risk rule out the window and put a big position on with a big leverage. In this instance once the BSKYB bid was blocked and then NOTW went under the share price is going to drop so why not capitalise massively on it? In the current climate these big movement seems to be more and more apparent but I don't read a lot about people who trade them on here but using that method seems one of the closest things you are going to get to a zero risk maximum profit trade.

I don't know a lot as you can probably tell and I'm still learning so apologies if this seems to be a stupid question, I'll also say this is my first post on here but I have been coming on the site a lot and it is excellent. Thank you to everyone who contributes I have learnt a huge amount and will continue to do so in the future.

Cheers

Chad

 

[Pazienza]

You can do but you need to be careful. You can get hurt real bad real quick trading the news if you don't know what you're doing.

 

[market_bull]

I saw a guy referring to it as "reversals" and "thrusts". You know, let me dig that page up if I can find it...

*5 minutes later*

Trading in big news events is a long term strategy ( as opposed to day trading).
The trader needs patience to watch the trade develop. Once a trade is visible, it may often last for many weeks.

News Events can create two different trading opportunities - reversals, and, thrust.

Reversals

The news causes a sharp price move. The price movement is a short term reaction to the news. Once the euphoria / fear on the news is dissipated, prices will return to their original trend. After the news, the price movement reverses in a short while.
StreetSmarts, a book by Connors and Raschke discusses such trades in detail. Here is a summary of their suggestions.
1. We are looking for an unusual event which causes the market to move strongly.
2. Identify the closing price before the news driven move started.
3. Enter the Market at this closing price. "If the market can digest the radical event and come back to this closing price level, we want to participate in the reversing move".
4. "Risk with a stop up to the lowest level the stock reached after the sell off. For example, if a stock was trading at 20 before the event and it then sold off to 17, we will buy the stock if it comes back to 20 and risk, down to 17. "

Thrust

This is a news driven strategy which I call "The thrust". Prices react to News, then go through a reversal as discussed in Reversals above, then return back to break down below the low recorded in the first reaction. The Market is telling us that the News is really changing the environment for the stock. The effects of the news will be prolonged.

Here are the rules to trade such Thrusts:
1. Markets react to news.
2. Identify the lowest point in the reaction.
3. Wait for a correction to the intial reaction. The correction should generally be 50% of the decline from the pre news level to the lows in (2) above.
4. If prices begin their decline, go short below the lowest point in (2). Place a stop above the correction high in (3).

An example will make this easier. (1) Stock A falls from 450 to 410 on news. (2) A bounce to 435 takes the price above the 50% correction of the decline from 450 to 410. (3) We will go short below 410 with a stop above 435. Prices fall below 410, finally touching 350 in a few weeks.

Why we need rules to trade ? Because rules provide us with discipline. The rules tell us when we should be trading, and, how.

 

[cmmichaels]

You can do but you need to be careful. You can get hurt real bad real quick trading the news if you don't know what you're doing.

Very good point and I'm not saying I'm really going to at the moment but if I do get into the position where I have a trading account and a solid trading plan I think I would incorporate these trades into it and was just wondering if anyone already did this.

Realistically if you had the capital you could make a lot of money very quickly off the back of situations such as these, obviously you can still incorporate a S/L and risk management but the fact is in these situations if you get in at the right time I would say a lot of them a guaranteed to play out in your favour.

 

[BeginnerJoe]

Maybe the people releasing the news, or their chums, are just doing it to attract noobs so that they could unload their sh*ts too.

 

[scose-no-doubt]

well whatever the case, top lines are going to take a tw@ing so its a short on the basis pre event nvp of cash flows or projected equity alone in the short term

The question is, when will the money see value to start buying back? I still have no clue what metrics are used in practice. Hopefully will have some idea by next year.

 

[Pazienza]

well whatever the case, top lines are going to take a tw@ing so its a short on the basis pre event nvp of cash flows or projected equity alone in the short term

The question is, when will the money see value to start buying back? I still have no clue what metrics are used in practice. Hopefully will have some idea by next year.

Trade what you see and stop f***ing around with craptapulosa.

 

[cmmichaels]

well whatever the case, top lines are going to take a tw@ing so its a short on the basis pre event nvp of cash flows or projected equity alone in the short term

The question is, when will the money see value to start buying back? I still have no clue what metrics are used in practice. Hopefully will have some idea by next year.

You are never going to be able to guess the exact bottom are you but by the time things start to turn around you should have locked in a good amout of profit. As long as you get the 'meat' of the trade as they say. How long you leave it in again would come down to trade management and exiting the trade too early could be a potential problem.

In the case of BSKYB if you traded it at the end of last week you should have locked in a hell of a lot of profits already.

 

[scose-no-doubt]

Trade what you see and stop f***ing around with craptapulosa.

 

[Pazienza]

Although I can't believe he ever used words like crap or any of its derivatives.

 

[scose-no-doubt]

Although I can't believe he ever used words like crap or any of its derivatives.

Problem is that I'm an accountant. You look at a stock and see x whereas I look and see a reflection of the financial information and strategy and governance.

I have to un-indoctrinate(?) myself somehow... or more accurately, I need to at least expand the scope of my peripheral vision for the time being. Gotta eat, son and atm there only one accountant shaped seat left at the table

 

[BeginnerJoe]

When I look at a stock now, I see only pips. I never used to be like this before I joined.

 

[market_bull]

This site has that effect on people, from what I have seen. I'm sure I'll get there as well.

 

[Pazienza]

Problem is that I'm an accountant. You look at a stock and see x whereas I look and see a reflection of the financial information and strategy and governance.

I have to indoctrinate myself somehow... or more accurately, I need to expand the scope of peripheral vision for the time being. Gotta eat, son and atm there only one accountant shaped seat left at the table

Don't get me wrong, fundamentals are great and I do pay attention. But you're right, think broad.

What fundamentals do you need? For over two years, the wise heads have been muttering darkly about a bear market bounce. Well, since then the S&P has more than doubled. The pundits will be predicting gloom and doom until the next crash comes along to save their a$$es (actually, they'll turn bullish a few months before ). They're right about all their gloom of course, but what has that to do with the stock market?

The only fundamental that matters is that it's a bull market. This is a plain as a pikestaff and has been for two years. How many pivotal points have been passed in that time whilst the know-it-alls chew on their misery gristle?

The condition of the market - not that of the company or the economy - is the real fundamental. Everything else is just crust on the gusset of life.

 

[Pazienza]

F***ing pundits. I've got more trading ability in the crack of my @rse than the whole lot of them have got put together.

Now, one thing you should know Scose before we go any further. I immac the crack of my @****. Why? Because it feels good.

Do you see what I'm getting at?

 

[Pazienza]

Sheeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeit.

 

[scose-no-doubt]

Clay Davis

 

[Pazienza]

clay davies

Who? Sheeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeit!

http://www.youtube.com/watch?v=70eU840lc38

 

[market_bull]

You truly are a legendary member, Pazienza. Who? Sheeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeit!

 

[Pazienza]

Rubbish day in the markets today, nothing doing at all. Give me volatility or give me death.

Days like today bore my nuts off.