In short: yes. Even if you’re a technical trader, that only looks at charts, it isn’t a bad idea to read the news. I’m not saying that it is a good or bad idea to make your trading decisions off of the news, but you should at least be aware of what is going on in the world.
World events such as an election, Brexit, and global conflicts can have an impact on what you’re trading. Often times, these events provide great opportunities and volatility in the market. It’s good to know if there is a binary event that is taking place, so you are aware of if you want to trade it or stay away from it.
There tend to be two camps of traders: technical traders and fundamental traders. More often than not, these two schools of thought are very polarized. Most technical traders don’t care for fundamentals, and most fundamental traders don’t care for the technicals. However, this is a mistake. While it’s up to you whether or not you take a trade because of an earnings report or because of a support/resistance level, for the reasons stated above, you should be aware of both.
As Paul Tudor Jones put it, in his documentary Trader, the world is one giant flowchart of capital. Everything is correlated. To what degree things are correlated is for a separate article, but the fact remains that there is a cause-effect relationship that everything that happens.
People Move Markets…
Even if you think the market is moving because of earnings or technical levels, what ultimate moves markets are people. People have many reasons to buy or sell. Some people make their decisions based off of fundamentals, others base their decisions off of technicals. As a trader, your job is to anticipate what the crowd is likely to do and either trade with or against the crowd given the context.
You can only know the context if you are aware of both fundamentals (news) and technicals.
Should You Trade Based On News?
This might seem contradictory, but I personally think that you should not trade off of the news. “Well what the hell man? You’ve been saying I should read the news, but now you’re saying you shouldn’t trade off of it? Hello Mr. Walking Contradiction…”. Firstly, you do you. Capiche? Whatever you do is your decision. That said, price ultimately moves first.
If you wait for things to be reflected in the news, odds are you’ve missed the best part of the move and the risk of entering the trade now is a lot higher.
If you’ve studied any of George Soros’s writings (which I’m sure a lot of you have), you’ve likely come across his theory of reflexivity. If you haven’t, you should really consider reading his book The Alchemy of Finance. Basically, what Soros defines as reflexivity in the market is the interconnectedness of price and fundamentals and that the two ultimately influence each other.
When price goes up, people find reasons why price is going up in the fundamentals. This is largely due to a lot of cognitive biases (which we all have), but it causes a self-reinforcing loop where buying begets more buying, and vice versa with selling.
So What Do You Do Now?
Have I thoroughly confused you? Hopefully, I haven’t. For the reasons stated, it’s important that you’re aware of both technicals and the news. It’s all related, and to ignore one part is to fly blind. When you’re risking your hard-earned capital, and when you’re playing a game where if you lose your capital you can’t play anymore, it’s important to look at things from many different angles.
There is a high amount of cognitive dissonance that can result from seeing conflicting information in the news and in price. That’s the reality of trading. If it were easy… well, you know the saying.
As always, I hope this article was helpful to you in more ways than one. If you did derive some benefit or insight from it, please let us know in the comments below. Thanks for reading.