- Keep updated on the economy
- Identify market psychology/sentiment
- Identify possible market-moving news
Ok... The 3rd one does sound like I trade the news, so it needs alittle elaboration. Basically, markets love to wait for news to move, many times in a direction that it intends to move anyway - this includes both reversals and continuation. What does this mean? If I got a really good technical set-up, with good risk-reward ratios and a proper stop-loss, I'd likely keep my trades and expect the news to move my trades in my direction. :)
Back to the topic of news, this post also serves as a reminder to myself. Just some weeks back, people thought that US Markets had bottomed out and the worst was behind. Several tropical storms, like Gustas and Ike, threatening to impact oil production and cause further dollar weakness. But the dollar continued to rally, and oil continued to drop as the storms one by one passed without any long-term significant impact on oil production. Naturally, factors impacting oil prices are many and goes beyond just oil-production, but that's another topic in itself.
So the dollar rallied, markets became hawkish, and here's what I think was interesting - People were starting to expect the Fed to hike rates! Personally, I agree with what Buffet and Sorros and expressed sometime during this entire Sub-prime saga - The housing market is weak and may continue to weaken, and this is likely to continue for quite sometime still.
But look at how quickly the market turns! Just a couple of weeks back, people were expecting rate-hikes, and how people are looking at possible rate-cuts.
People might say - "Hey! No one expected Lehman to file for bankrupcy, and why did the Fed suddenly stop bailing out companies now? This is an unexpected development!" So suddenly, expectations have switched.
That's one reason why I remind myself not to be too caught up with the crowd psychology, and while news is important to know, it really should never be the key/only deciding factor for your trades.
Alright... just ranting. The markets never cease to amaze me.
[P.S. The article above was written based on memory, for actual opinions expressed by Buffet and Sorros, do a google search. =) ]
