Q1: Is it really important for investors to follow the news ?
Q2: Is it impact on the price?
This has been a debated topic among many, especially when it comes to the impact of news on price. In today's article, Ryan would like to provide my personal perspective on the matter.
In my opinion, following the news is crucial in understanding the market movements and changes, especially in a new and rapidly growing market like crypto. Keeping up with the latest news helps us stay ahead and make informed investment decisions.
There are two types of news - those that determine trends and those that are momentary.
I emphasize the importance of following news that determines trends, as it can have a major impact on the market's growth. For example, the emergence of decentralized finance in 2019 and the new terms like #metaverse and #NFT in the following years, led to a strong uptrend in the market, pushing the price of Bitcoin from $10,000 to $60,000 in 2021.
Another example is the #Web3 trend that appeared in the first half of 2022, which failed to push the market upward due to a lack of money flow. To avoid such trend scams, I suggest incorporating technical analysis as a filter to make informed decisions.
In conclusion, following the news can be valuable in understanding market trends and making informed investment decisions. However, it is important to differentiate between news that determines trends and news that is momentary, and to also use technical analysis as a filter.
Q1: Is it really important for investors to follow the news ?
In answer to question #1, it's important to follow the news, especially for medium and long-term investors who need to identify the driving forces of the market and investment trends. News can come in two forms: trending news, which is crucial to follow, and seasonal news, which can have a momentary impact on prices.
Short-term traders, on the other hand, may or may not need to pay attention to seasonal news and must know how to combine it with a suitable strategy to avoid losses.
Q2: Is it impact on the price?
In answer to question #2, news does affect prices, but it's difficult to use it to make decisions in the buying and selling process. The news opinion that legitimizes the price line can be both right and wrong, as many people get it wrong in making decisions based on news. Surfers need to pay attention to short-term news, but they need to know how to use it effectively to make profitable trades.
First, does the news affect the buying and selling decisions of investors in the market?
The answer is yes, but the impact of each news on the market is completely different and that news is given in different periods of the market, its influence is also different. I gives an example: if a Provincial President makes a statement, the impact will be far behind that of the US President. Or a decision made by the Fed, the influence is completely different from the decision made by the Central Bank of India or a specific country in Asia, as an example for you to understand easily.
The news can have a positive or negative impact on the market.
Some news can boost buying, push prices up and have a positive effect. While others can spark fear, trigger selling, and cause the market to decline. However, making decisions based solely on the news without considering other factors such as risk and expected returns can lead to emotional decisions that result in significant losses for many investors. For instance, if someone blindly assumes that an interest rate hike by the Fed is a signal to sell and a rate cut means it's time to buy, they are ignoring important considerations and could end up losing a lot of money.
So, the notion that news validates the price trend is not entirely accurate. A more accurate statement is that technical analysis can assess the impact of news on the market. Technical analysis and news analysis should not be considered separate entities.
In terms of sentiment, we often react to news with emotional judgments of whether it is positive or negative and make buying or selling decisions accordingly. However, this approach is risky and lacks a proper assessment of risk and potential return.
Technical analysis provides a more nuanced approach to evaluating the impact of news on the market. It recognizes that trends, whether up or down, are built on accumulation of buying or selling force, not just news events. By studying charts, technical analysis helps us to see if the news is having a real impact on market sentiment, and whether the impact is strong or weak. This allows us to make informed decisions based on risk and potential return, rather than just following our emotions.
Technical analysis and news analysis should not be considered as separate entities. News gives an indication of the timing to focus on the chart, while technical analysis measures the impact of the news. It is not news that determines the price line, but rather the accumulation of buying and selling force in preparation for the news. This can be seen on the price chart and professional traders use it to find the lowest risk points and make their trades. The crowd may believe the price is solely reacting to the news, but in reality it is a result of the accumulated buying and selling force. Professional traders take profits when the news is released, while the crowd may jump in due to FOMO. This is embodied by the saying "Buy the rumor, sell the news.
Moreover, there are instances when news is about to be released and the market makers are not interested in creating a trend, causing the price to remain flat, leaving the unaware crowd to rush into fomo long/short positions, only to be surprised that the price has not changed. In the end, whether the news has any impact on the market is determined by the market makers and the strength or weakness of the cash flow in the market at that time, which can be checked through technical analysis.
Additionally, due to the crowd's tendency to have fomo during news times, it's also a time when market manipulations often occur, leading to many novice traders losing their accounts. Therefore, I personally advise new traders to stay out of the market during news releases, wait for the market to form a clear trend, and then make a decision to follow the trend, avoiding unfortunate outcomes for their accounts.
Thanks for reading and take care!
Best regards,
Ryan Holmes