Day Trading Strategy: News Playing

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In the day trading community where change is the only constant occurrence, each day trader needs to have his personal tactic to guide him when day trading. Different techniques are presently being utilized by day traders worldwide. There are individuals who are trend followers and these traders believe that those securities whose prices are rising gradually will continue to experience a climb. These day traders trade securities influenced by this concept. Certainly, there are also day traders who utilize the contrarian trading as a strategy. While most day traders would buy securities when their costs are rising, traders who use this contrarian technique of day trading would short-sell theirs. Some day traders also use news playing as a strategy.

News playing is a day trading approach in which the day trader buys a security that has just recently been featured at a favourable light and short-sells the one which has been given a bad publicity. A day trader who uses this system always has his eyes on the most recent news despite the fact that it is not really the news that is of true interest here. The people’s response to these news propels the market and a seasoned day trader who makes use of news playing recognizes this. Some people may comprehend the news differently and react based on the destructive emotions known as fear and greed. These preliminary human responses give a skilled day trader an advantage.

News playing, like any other strategy, also has disadvantages. The good news will likely be on a day trader’s end usually if he is selling a security and not acquiring one. This is simply because news does not essentially reflect what's truly happening. Well, if the good news about the product or company is real, then the rates will continue to escalate, allowing the would-be buyer to earn by selling it at a higher price soon after. The thing is that occasionally the good media attention might be a marketing technique of a company that knows it is destined to fail and to cut back on deficits, the buyer will be forced to dispose of it quickly. Another situation is that the favorable news may just be a product of a dead cat bounce.

A dead cat bounce occurs when a stock whose value might have gone down because of a negative publicity, swiftly climbs back up. This might be a consequence of some day traders’ assumption that the stock price has now reached bottom level and so the only way to go is up. A good news about an development may reach the public and so traders may get interested again in acquiring this stock. All these happen without them realizing that it is only a dead cat bounce and following the momentary climb, the stock will still drop to its lowest. Check out a day trading blog to understand more details on this dead cat bounce. A day trading blog can explain further about dead cat bounce and the way to identify it in graphical charts.

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John Smith has 18 articles online

You can learn more on what a dead cat bounce is visiting this day trading blog.

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Day Trading Strategy: News Playing

This article was published on 2012/02/25