Imagine school days, when a rumour spreads in the classroom that the teacher is planning a surprise test tomorrow.
Mr Frontbencher is relaxed and cool as a cucumber, unbothered about the rumour, already prepared.
But for the bunch of rowdy Backbenchers? who only study at the last moment, this rumour comes out to be a blessing.
The Books flying open, they kick into study mode instantly with full intensity!
Then comes the next day when the test is announced, and these cunning students ace it and manage to pass with good marks.
How? Even before the official test announcement, they heard the rumours and started their preparations early, which gave them an edge over their classmates.
While rest just got a few minutes to revise before the test, wishing they had acted upon the rumour!
The same happens in the stock market.
“Buy on Rumors Sell on News” Trading Strategy
Rumours and news affect the stocks adversely depending upon whether it’s a positive or a negative one.
They can quickly change how people feel about a stock.
“Buy the Rumour Sell the News” is a speculation-based strategy in which traders buy stocks/commodities or an instrument when rumours (positive or negative) are circulating in the market and sell it when the actual news is out!
Positive rumours and news would create high demand and more people would go LONG on it (Buy it).
Negative rumours and news would create negative sentiments and panic in the market making them SHORT (Sell) their positions.
This hype and sentiment that something positive or negative is gonna happen with the company increases/decreases the demand for its stock.
Higher demand and positive sentiments increase buying, pumping its price up
. And the opposite happens with negative sentiments in the market.
Initially, the market reaction often moves in the direction of the rumours or sentiments. However, it might react to the actual news differently than expected.
So this trading strategy is completely based on speculations and emotions of the market but can be smartly used for swing trading to make quick profits.
Buy low and sell high based on the anticipated news.
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Disclaimer: I’m not a SEBI registered advisor and content on this site is only for educational purposes. Kindly consult your financial advisor before trading or investing at your own risk.
How Big Players Buy the Rumour, Sell the News and Make Big Profits?
The big players and smart traders anticipate the rumours and use the emotions of the market to make big money.
They buy stocks when the rumours are strong and everyone’s excited about it. Shortly they sell their stocks when the news confirming the rumours is out.
So before everyone else figures out or catches the train, the big shots walk out with big profits and you miss the big move.
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While small retailers do the opposite. They start buying when the official news is out in the market.
And what do you think the stock would do when the big players are selling off with heavy volumes, the stock price would go up or down? Correct, surprisingly it might not react the way you expected.
The official news always comes on TV later, but by then, the prices have already moved based on the rumours/sentiments.
They not only “Buy Rumors Sell News”, At times they’re also the ones to make up those rumours and change the sentiments of the market to manipulate the stock. Surprising?
Which STOCK do you think is manipulated and is just flying on the rumours? Let us know in the comments below!!
As this is my last post of the year, I wish you all a Delighted and Prosperous New Year!!