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How to Trade The News: Hedging Headline Risk Amid Geopolitics Dramas
Strategic investors seeking solid gameplans for their first quarter returned from year-end holidays to be buffeted anew by geopolitical risks.
How to Trade the News: Rule 6 – Be Flexible
How to Trade the News: Rule 5 – Be Relentless
Last week, Rule 4 (the role of economic data) mentioned in passing the importance of having a “mechanism for tracking news developments.” This week, we are going to dig into what this means exactly. Because trading the news requires being utterly and completely relentless in capturing new developments consistently, efficiently, and effectively.
How to Trade the News: Rule 4 – Understand the Role of Economic Data
Economic data releases are always relevant and important. The key is to understand the relationship between specific data points and specific news-driven trading exposures. Data releases and the news cycle have an obvious symbiotic relationship. Data releases generate news cycles, as well as trading opportunities. You cannot ignore the data. Instead, you need a strategy for how to read data in the context of the news cycle. Welcome to Rule 4.
How to Trade the News: Rule 3 – Be Strategic
How to Trade the News: Rule 2 – The Trend Is Your Friend
The markets have an old, valuable maxim: “don’t fight the tape; the market is always right.” The point is that as a trader you don’t want to get caught on the wrong side of momentum. It does not really matter if the fundamentals or the technical are pointing in a different direction. If the market is heading somewhere, as an individual investor you cannot change the direction of travel so you either have to follow the trend (e.g., invest in an index fund) or get out of the way (hedge or divest).
How to Trade the News, Rule 1: Be Objective
How to Trade the News: Rule 9 – The Role of Alternative Data
Investors need data the way people need oxygen. Capital markets have consistently been on the frontier of technological innovation precisely for the purpose of acquiring more and better information faster. Before we had Twitter, there was the ticker tape, the wire services, and then the Bloomberg terminal.
How to Trade the News: Rule 8 – The Importance of Nowcasting
When capital markets interact with the news cycle and public policy, the focus usually is on the ultimate outcome. But today we suggest that this long-term focus is misplaced, even for macro and bond market investors. Capital market participants must mark their portfolios to market daily and adjust their exposure to risk accordingly. Adjustments can take the form of new or additional hedging activities, as well as asset disposition.