Reward 1000 Tiger-coins"Buy the rumor, sell the news" refers to a trading strategy where a trader buys a security based on speculation about an upcoming news announcement or data, and then sells the security once the news is made public.
1. Why we don't buy the news?
When a good news event comes out, and the price rises, entering on that good news release can potentially be the worst time to enter the market.
That is when everyone else who bought the stock at the lower price may be getting out of the market in order to reap a profit.
2. How to“Buy the Rumor, Sell the News”?
A common example is trading based on the expectation on a company's quarterly earnings report.
Perhaps there's a rumor that a company is expected to provide more revenue to shareholders than previously thought. In that case, traders will buy the stock quickly to take advantage of increased dividends or stock prices.
Once the company release its results and the stock rises on strong revenue, the traders will sell their shares to turn a profit.
3. This strategy might sometimes be inaccurate
Disadvantages of the strategy include lack of accuracy and potential loss of opportunity on decisions not made quickly enough
No one can time the market with absolute certainty and buy the rumor, sell the news trading strategy is no different. There can be a number of reasons why this strategy could fail to yield a profit for traders.
For example,
in a bear market a company that beats expectations in its quarterly earnings may still see its stock price fall because the good news may not have lived up to the hype.
$Baidu(BIDU)$ released its latest earnings this week. Although it beated expectations, the share price dropped after the results.
Do you think "buy the rumor, sell the news" is a good trading strategy?
How do you find trading opportunities?
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