How to Read News?

-- Questions that could prevent you from falling into trap

Taking too much notice of news on CNBC and financial websites such as Yahoo financial, CNN Money and MarketWatch.com is one of the main reason why so many retail traders get the market all wrong.

Very simple, most news is hype and is not really for your benefit. The sooner you can accept this point, the quicker you will make your trade to serve the best of your interest in a cold, independent way, focusing on facts and data, and not what other people are telling you. News is often dressed up in an emotional way, this is the one you want to remove from your trade.

The problem is journalist cannot tell you the whole truth and never will. They are not "inside track" and really have no idea what is going on in the professional crowd. And they frequently fed with incorrect or incomplete information purposely which they duly report, live, unable to check the authenticity. This is not their fault. They are not aware that they are being manipulated. To avoid falling into trap, we need to think as professionals.

Take today's news as example:

Mr. Ben Bernake, the Chairman of the Federal Reserve, appears on the TV and makes what appears to be bullish statement -- the market soared in response this news.

The Newscasters appears on TV, reporting why the market has soared today: "The market has soared triple-digital today, on positive statement made by the Chairman of the Federal Reserve, Ben Bernake saying the Fed stands ready to provide more liquidity to the financial markets if needed and will act if necessary."

Why this news release mislead you and harm your trade? Because this is how the news should have been reported:(from professional trader point of view.)

"The market has soared triple-digital today. Positive statement made by the Chairman of the Federal Reserve, Ben Bernake, caused professionals to mark the market up, in a maneuvre to response a positive news. This had an effect on retail investors and uninformed traders, causing them to rush out and buy from professional traders. (Hedge fund & PE traders) Who have been waiting for this opportunity to sell at higher prices. Professional traders were aware of the forthcoming press release well in advance of the event, and were ready to distribute a large amount of stock, and accumulate huge puts position at low prices. They stand to profit handsomely in the days ahead, as a result of this successful and expertly timed operation."

When you read/listen to the news, always ask yourself:" Have professinal traders used this news to mark the market either up or down as a moneymaking manoeuvre?" Follow the steps of smart money.

To avoid pitfall and trap, following three questions could help:

1. What does this story mean (if it is true) in the overall context of my prior analysis of the market?
2. What use can be made of this story by others working against my interests?
3. Can I use this news story to better my own trading position?

As guide, normally you need to:

1. Buy on bad news which has produced a "shake-out" in the market
2. Sell on good news after you have already seen a substantial bull market.

(Above content is for pure study purpose and does not serve as trading advice.)