Buy the Rumour, Sell the News Strategy Explained

There are few things in trading more frustrating than being the source of liquidity for other traders. One of the best ways to avoid that fate is to hold out for https://forexhero.info/pep-8-style-guide-for-python-code/ a price trend reversal after a good news event. It can be more to your advantage to wait for a brief reversal in price direction and buy at a better price.

• Note that it does not have to be a rumor for this to occur.
• In this article, we have looked at what buying the rumor and selling the news is.
• During the first three earning releases of 2021, the stock rose in the month leading up to the announcements.
• Finally, it is important to think about how long it will take for the news to be announced.
• Predictability is one of the main strengths of this strategy.

If earnings come out as expected or worse, they may sell. If earnings are much better than analyst expectations, a trader may hold on as the positive news may surprise people and bring new buyers in. The USD/CHF tumbled as fears mounted about coronavirus, and traders bought the CHF (and sold USD). While the impact of Covid-19 lasted a long time, the rumour didn’t.

Frequently Asked Questions About ‘Buy the Rumor, Sell the News’

During the first three earning releases of 2021, the stock rose in the month leading up to the announcements. This was buying the rumour, as traders expected that Apple would post good earnings. And it did, beating analyst estimates by 18% to 48%. And yet, each time, right after earnings, the price fell. Traders were already expecting good numbers and bought based on that expectation. When the earnings were released, selling increased because the up move had already happened.

The opposite of “buy the rumor, sell the news” is a trading strategy that entails selling assets after positive events occur and buying them after negative events occur. This strategy is based on the belief that markets are efficient and prices reflect all available information. Thus, once an event occurs, there is no reason to expect prices to move any further in response to the news.

Buy the Rumor, Sell the News: Meaning & Trading Strategy

While this is a wild EV stock, this particular announcement is now old news with the IPO event soon behind us. The price action due to the US IPO ‘rumor’ is over, and we are seeing the expected drop. I caution NEW short positions in this stock or GP, the post US IPO security, due to the EV hype we are seeing.

Here’s a detailed guide on How to get started with Forex Trading tailored specifically for beginners. The key economic events that occur in a country have a great deal of impact on the currency. Currency exchange rates are highly influenced by the monetary policy stance (expansionary or restrictive) of a country’s central bank. Therefore, this strategy can be applied in advance of a policy decision being taken by the central bank, in light of the expectations for the policy rate to change. When confirmation of the rumor eventually breaks, the prevailing trend usually reverses as early traders who caught onto the rumor sell their shares.

Trading Stocks

The stock price could move in anticipation of the earnings. So I might buy in the period leading up to the announcement. But in reality, even good news sometimes fails to create spikes.

Secondly, when you sell the news, you may not get the full value of what you were hoping for. Again, do your research to ensure you are getting the best possible price. Finally, keep in mind that this strategy requires timing and quick thinking.