21st June 06 - Trading on News (Part 1)

Thanks for all the wonderful feedback. Really appreciate it :) Let me illustrate my simple way of trading on news with an example so that you can understand better ...

Let's talk about interest rates hikes since it seemed to be the buzz of the town. Everyone (no, I'm not exaggerating) I know is talking about it, regardless whether they really know it or not. The next news we can trade on (and possibly make $$) is the hiking of interest rates by Bank of Japan (BOJ). There's speculation that it might come as early as July... slurp slurp ... The fact remains thet interest rate hikes hurt equities and may cause major sell-off in the Japanese Nikkei market.

For my system, there's two trades you can look out for: "follow-thru" and "reverse swing".

For "follow thru", you may trade alongside the crowd. For this example, on the day BOJ announce the rate hike, you might consider to short Nikkei as the 'propaganda' of interest rate hikes hurting equities will sink in and everyone from japanese rice farmers to sophiscated fund managers will start dumping their Japanese stocks. Another example of "follow-thru" can be seen in 17th Sept 2001, the 1st day the market re-opened after Sept 11 terroist attacks. On that day, Dow Jones shed 684.4 pts and the sell-off continues for days.

Dear friends, pls take note that "follow-thru" does not work for stock analysts recommendations. It might not be a good idea to buy alongside the crowd when the analysts call for a buy in a certain stock. Do think about it, if the stock that they are recommending is so good, why are they not buying for themselves?

Remember, you only trade alongside the crowd when even the smart money joins the crowd. Such situations happen when there are mass fear (Sept 11, London bombings) or pivotal events (interest rate hikes or cuts).

I hope everyone gain something today :) Before I bring fro "reverse swing" in my next post, do feel free to post any comments/questions/feedback about "follow-thru". (Click on COMMENTS below)

Let's learn from one another, ya?

Disclaimer: The above information are for educational purposes only. I shall not held responsible for the profits or losses for any trades participated.