Part 2: Influential Market Trends
By Ultimate Trading
How Can The Different Market Trends Affect Your Decisions?
News & Market Trends
Sharp rises in stock prices are often triggered by good news, either about
the company itself or about another company in its sector if the sector
is a hot one. The key to participating in price runs started by news is
to get in early, before everyone else has. Obviously, if you're the last
one in, you'll buy at the highest price and then watch the stock price
Likewise, bad news can send a stock's price plummeting. And, like everything
else in the market, what actually matters is not whether the news is really
and truly good or bad, but whatever the market trends perceives it to
be. You might not think the market's reaction to a piece of news makes
any sense, but what you think is irrelevant to your trading. Always go
with the market.
The primary market trends concerning news is that news overrides other
What does this mean?
Let's say you're holding a company heading into its upcoming split. The
stock is in a hot sector, and its a one to four split. The stock is rising
nicely, and the ex-date is three days away. The next morning, you see
unexpected news that business in the companys sector has dropped off
sharply in the last quarter and that this slowdown is projected to continue
for at least the next six months.
What's going to happen to the split run? News overrides other market trends.
Unless the market decides it doesn't care about this news (which is not
likely), the companys run is over. You have to get out of the stock.
When important news comes out, abandon other market trends. (Unexpected
news is one of the main reasons why you must set stops on every trade.)
In the same way, if you've sold short to ride a market trends in which
stocks usually go down, significant good news about the stock should send
it back up.
Short-Selling Weak Stocks & Market Trends
In both rising and falling markets, stocks can become targets for shorting
as a result of market trends. Shorting is always a stronger strategy during
a bear phase, but many short plays work extremely well in bull markets
in fact, some shorting opportunities don't even arise in bear markets
because many shortable market trends are the after-effects of buyable
An example is extremely reliable market trends of weak stocks falling
after they have run up on moderate news. Let's say the biotech sector
has been hot during the last couple of weeks. Then a small pharmaceutical
firm puts out a news release that it new drug has passed its trials and
will soon go to market. The market's perception of the news is extremely
positive, and the stock rises 30% in two days due to optimistic market
trends. Your analysis says that the price wont hold at that level. So
you wait for what you believe will be the stock's final push upward, short
it near the top, set stops to protect yourself, and wait for the stock
Stocks like this that rise on news can be traded during both parts of
their journey - long on the way up, and short on the way down. They're
ideal for trading because, once you've watched a few similar situations,
you'll get an idea of just how far the market is willing to push them
up. Typically, its individual traders who cause the increase, because
the stocks are cheap and have a low market capitalization.
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