A lesson on trading “old news”

The markets move the most on surprises or fresh news because they price or reprice future expectations. On a daily basis, probably 99% of the news that gets published is actually useless for the market because it doesn’t change anything or it’s not what the market is focused on.

As an example, yesterday we got Fed Chair Powell speaking and (surprisingly) he triggered a selloff in the stock market even though he didn’t say anything new. He basically repeated what he said two weeks ago. The move was probably driven by algos or some delusional traders hoping for a pivot.

When this happens, the moves are generally faded soon after as you can see in the Nasdaq chart above. This was not fresh news. The fresh news was two weeks ago when the stock market was selling off hard and there were hopes for Powell to provide some kind of support. Support that didn’t come and the stock market resumed the selloff.

You’ve probably noticed the same with the economic data in these last couple of weeks. The market hasn’t been caring about it because it’s old news. It reflects conditions before April 2 and April 9, and because it doesn’t change Trump’s or Fed’s policy. A big spike above cycle highs in the Jobless Claims data for example, would be fresh news because the market would start to build expectations on potential reaction from the Fed.

For a trader, being able to distinguish what is tradable information and what’s not is very important because it prevents overtrading and encourages capital preservation. Remember that making money in the markets is easy, but being able to keep it and grow it is where the real skill stands.

This article was written by Giuseppe Dellamotta at www.forexlive.com.