When I began studying stocks and options, it seemed every investment guru shared a common rookie mistake – “Not keeping up with business news.” In addition, many tell you to invest in the businesses that you know and understand. When I took the path or trading options, following this advice led me to making many many mistakes. I have since then cut out my daily dose of business news and have significantly improved my success. In this article, I am going to explain two reasons why I choose not to watch business news so you can decide if this is the right path for you as well. I would like to also add that the message of this article is only geared towards trading options as trading stocks, and investing long-term is quite different.
1. Poor Decision Making- Emotional Trading
Watching the news, especially as a newbie trader can very easily trigger emotional investing. If facebook comes out with some damaging news, you may be tempted to join the crowd in a sell off. The media easily can provoke fear, or even excitement and lead you to making poor decisions. While news can and will definitely affect your positions, most of the time it is best to just wait it out because the market will likely correct itself.
While the media may provoke emotional investing in some of us, this is not true for all. Many traders have expertise in fundamental analysis, and the news is likely a powerful tool for these guys. Fundamental traders are able to interpret the news objectively and make optimal decisions which will enhance their portfolio rather than destroy it. Whether you are confident in your ability to interpret the news favorably and make trading decisions with consideration of the news is up to you. I however, have taken many losses trying to trade this way and quickly realized that this style of trading was not for me. How do you trade without understanding the business behind the stock symbol? This brings me to my second point-
2. Technical Trading
If you have issues getting emotionally involved in your trades, technical trading may be the route for you. Speaking from my own experience, technical trading involves making decisions solely based on trading metrics. To admit (with a little guilt), I do not know many of the companies I am invested in. I do not understand how they work. I do not know what they do. BUT- I do understand their value. I make my trading decisions solely based on a technical analysis. What is the price? What is the volatility? What is the expected move? What is my risk/reward ratio? The list goes on. For me personally, this works really well as I do not have to worry about my emotions getting in the way. I make decisions strictly around the numbers, and I have little to no directional assumption about where a stock may go.
Summary
To sum it up, there are many types of traders and based off of who you are and what you excel in, you need to develop a trading strategy which will be most optimal for you. If you feel that following the numbers feels safer and more at home for you, please subscribe below for more tips on what numbers you need to be looking at!
One reply on “Trading Tips: Two Reasons You May Not Need to Watch Business News”
Lam Andrew
Super helpful content here!!