One thing that always bothered me in my early trading days was the abundance of “noise” out there that distracted me constantly and adversely affected my ability to make sound trading decisions based on technical levels. This would instill a an emotion of greed or fear in me to the point where I would come out of a positive trade too quickly or hold onto a losing one for too long thus hurting my portfolio. I am not suggesting that you be oblivious to what’s happening in the markets but you don’t have to pay attention to every little thing or look at every headline as a suggestion to modify your trade. If you have done your homework right & placed the trade according your plan than sit tight and let it play out.
Over the years I have learnt not to pay too much heed to the flashy headlines… after all they are thrown in your face to gather public’s attention not as a suggestion of a trade idea. For me eventually I realized that a couple of good resources for news, articles & trade ideas etc. is all you need with a possible mentor, friend or a fellow trader that you know & trust for you to consult when at all you are in doubt. An example of this is what happened this past week with tech quarterly earnings release & some other noise about Cryptocurrencies.
Earnings season in the U.S. equities always is the determining factor for the market direction in the coming months. The tech sector was specially under the radar as usual since it has been sole driving force behind the resilience of the U.S market in recent past. Before I go any further I must advise you that playing earnings in Stocks or data releases in Forex for short-term traders like me is like buying a lottery ticket and then praying to the heavens for the asset to move in your direction. Need I tell you what the odds are of winning a lottery? Having said that if you are a long-term investor looking to cash in the future potential & growth of the company based on a sound business model these corrections don’t really matter too much.
This brings me to the price drop that we saw from Facebook & Twitter of 20% after their earnings release. Talking about Facebook, it expects a slowing growth and a dwindling operating margin in the near future. However, it still has a very sound business model with one of the biggest social media platforms in the world with 2.2 billion users, owns popular Whatsapp, Instagram & Messenger and has recently made some big bets in the AR, VR arena. Similarly Twitter has turned around very nicely this year with gains of over 100% after being in trouble in the previous years. It is one of the dominant players in social media arena with room for growth, 335 million users, targeted acquisitions & organic growth initiatives. Twitter’s drop came due to a loss of 1M users caused by the account removals and/or suspensions to fight abusive content and misinformation (which is actually a good thing). The whole point of telling you all this is not to give you an investment advice of buying into these companies but to let you how Earnings play out, the market noise associated with it & whether it should affect your trading or investment decision. Of course if you are a short-term trader like me the simple advice is to stay away till things settle down before dipping your feet again. For long-term investors these moves are considered as mere corrections giving them an opportunity to consolidate and/or increase their position.
The Crypto market gets plagued with market noise or FUD even more. In my previous article I had mentioned a prospective approval of Bitcoin ETF will be one of the fundamental reasons giving boost to Cryptocurrencies. Yesterday I got bombarded on my desktop with notifications of news that ETF application by Winklevoss brothers got rejected yet again by the SEC (Securities & Exchange Commission). Coincidentally the price of Bitcoin fell from the recent highs that it had maintained for the past week or so. Obviously, the price drop was promptly linked to this decision and that it was being suggested that this would kill the recent BTC bull run. I didn’t pay much attention to it but the headliners continued today to the point that I finally decided to read a little more into what happened & also look at the Bitcoin chart. Turns out that SEC declined the application on administrative grounds and actually went onto explain in the 92 page reply about not having anything against Cryptocurrencies – BTW there are five applications for ETF filed with SEC right now! So after that FUD was clarified I opened the chart for Crypto kingpin and it clearly showed some profit taking in the digital coin where it came down to the level of previous resistance & now support of $7800 before rebounding to $ 8260 at the time of this writing as you can see in the figure above.
The market noise can literally panic you to the point where you would make irrational decisions & cause a major dent to your investment portfolio. So stay, focused & keep the your goals in sight. Patience is a great virtue to have in trading of financial markets. Practice it!
Related Articles: The ABCDs of Fintech, Trading Psychology & Lessons learnt, Cryptocurrencies reviving Agorism, Tariff war & Changing dynamics of Free trade
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