Stock Charts Precede the News, Not the Other Way Around
Most technical analysts will tell you that charts are “the light” when it comes to trading, and that you’re likely “stuck in the dark” without them. The chart is your map. Without it, you’re trading blindly and essentially (in my opinion), gambling with your money.
A lot of traders believe that news makes or creates those ticks you see on the chart. Without the news, there will be no interest from investors, and therefore the stock won’t move. Perhaps, but I see it a little differently… though I’m sure many will disagree, I believe the news is already woven into the charts, and that stock charts precede the news. I’m not saying that you can predict specific news events from stock charts, you can’t. This is to say that I believe that charts give (sometimes obvious) clues of upcoming (planned) news events such as earning reports, buyouts, bankruptcies, oil inventories, company public announcements, hell… even FED meetings and #Brexit voting results. Crazy? Maybe. Or maybe we just missed the look on the chart, or had the wrong read. Was that really a “failed” pattern? Or was your read on it wrong all together?
These patterns can be incredibly obvious in hindsight, but in real-time they tend to be mistaken for something else. Look up any major news event and match it to the corresponding name’s daily and/or weekly chart. In a big move scenario, such a move must be justified to a market full of all sorts of traders, including technical analysts. News “justifies” the move, period.
News / Schmooze
For many traders, the news is completely irrelevant to their trading. It is simply a byproduct of the moves they see on their charts. To others, its everything. It is a key factor in their trading strategy. Want to know why that symmetrical triangle broke so hard with heavy volume to the north? Look up the recent news on that ticker. The move is likely “justified” by the news puppets.
Now I will provide several examples for your viewing pleasure 🙂
Take $TSLA for example. Recently, $TSLA made an offer to acquire $SCTY. I can’t help but wonder who within the $TSLA organization was aware of this news, and for how long they had known about it before it was publicly announced. Retest of weekly coil, and hard break south of daily coil… both “justified” with one headline.
First note the weekly chart, as I have emphasized the retest of the coil/symmetrical triangle demand line.
Now note the 240 (4 hr). Another coil pattern formed on a lower time frame from the weekly, w/ the apex just below the demand line of the weekly wedge. Very timely for $TSLA to release their announcement when they did.
Now the same $TSLA weekly chart with major news events noted (pardon the busy chart):
More? How bout $SPY and #Brexit announcement?
Look at the big picture of $SPY on the monthly chart. Each major pivotal point in price action has a news catalyst which causes the directional change. Presidential changes, However, prior to each news catalyst, a bullish or bearish pattern takes shape, coupled with divergences indicating a reversal/trend change.
How bout $VRX? This thing went from the 200s to the 20s in a matter of months after news hit of Hillary’s plan to cut market exclusivity. Convenient too… if you’re a technical trader, you may have gotten a nice play on this (or knew to get it out based on the clues the chart gave you). If you invest your money based on potential upcoming news and promises, you may have lost a fortune. Several news stories followed regarding this name to keep downward momentum flowing.
A further out view to get the bigger picture.
There are numerous traders that have made it to a “successful level” of trading that will tell you straight up that they don’t trade the news anymore. I see it as being very similar to a (sheeple) chatroom, in that you are led (by the source) to believe what they want you to believe, and kept in the dark about what they don’t want you to know.
Draw your own conclusions based on what you see on the chart, not the “upcoming results of a study” or “court case results” or “job report.” Many of us understand that the news can be misleading at times. If you can see that a large move is coming and you aren’t comfortable, get out. You can at least see by the action you are trading that something big is about to happen. If you aren’t sure which way to take it, let it move before you jump in, play it small, or even play it both ways.
In real-time, the chart should be your guide and the news your entertainment. “I too, want to slow jam this news.”