How to Read the News When You are a Day Trader
Reading the news, especially financial and business news, should be a habit if you are an investor or a day trader. This is important because politics and other forces that affect the economy affect your investments, in turn. As a trader, you should learn how to spot these signs from the get-go, however, investors and day traders should be cautious when reading the news.
It’s important not to react to headlines immediately. Learn to process each one like a professional. If you are a newbie trader or an investor, reading the news can help you make sound investment decisions later.
Not All Breaking News Require Taking Action
Spotted a headline about the FDA approving a new drug? That’s an article worth reacting to. For example, FDA approval could potentially propel a penny stocks company into blue-chip status, but it’s also important to understand what the headline is not about. It’s not about the future profits a company could make based on regulatory approval. That should keep you from jumping into premature conclusions based on just one headline. Now think about your reaction if the headline was in reverse. What if, instead of approving a new drug, the FDA pulled a drug from the market? You may see the stock values plunge into nothing just for this reason, and yet, some pharma companies and other products may survive. The lesson here is that you shouldn’t be too quick to react to headlines. Read the papers and stay updated on the news and the best penny stocks to buy, but don’t allow one or two headlines to determine your trading for the day. All headlines require further scrutiny before you let them affect your business.
Read Other Papers
Also, don’t limit your news intake to just one source, even though it might be convenient. You should read more than one newspaper per day. This will enable you to glean more information about those short, attention-grabbing headlines that are meant to get a reaction out of you. Worst of all, don’t rely on broadcast news alone. Read a paper or two and perhaps browse a trusted online blog for the sector. Broadcast news may conflate hard news with opinion, which can mislead well-meaning investors. With papers, the opinion is clearly marked off as opinion, so you know what you are getting into.
Take Negative News with a Grain of Salt
Negative news for a company or a sector doesn’t translate to doom and gloom instantaneously. This is a tricky area which new investors are particularly vulnerable to. Negative news may only indicate a minor shift that occurs within a day or two. So, if you see oil prices momentarily drop, that doesn’t mean you should start selling your shale shares right away. With negative news, learn to be patient. Seek advice from more experienced traders regarding how to react to negative headlines. Some companies may bounce back from such headlines, while others won’t. Investors, in the meantime, should do a deep dive before taking action based on a superficial interpretation of negative headlines.
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