The link between news trends and the global market has been known for a long time. In the last couple of decades, we’ve been seeing more and more focus on this area, with various companies and financial organizations attempting to identify reliable links between certain global news and market swings. And while we still have a long way to go, we’ve also seen a lot of progress in this regard in the last couple of years. Here are some of the more important points that have emerged in trading.
Positive News Doesn’t Necessarily Have a Positive Impact on the Market
Many inexperienced traders tend to associate positive news with positive market developments exclusively, and vice versa. That’s not always the case. In fact, there are many examples of seemingly upbeat news causing a negative market swing.
For example, a company announcing its profits going up in the last quarter might normally prompt someone to see it as a safe investment. But everything must be considered in context. Did the company actually meet its internal goals? It’s possible that a company is profitable, and its board of directors is displeased at the same time – but that’s not always that easy to infer from a news headline. If you don’t believe us, see for yourself – tools like this TradingView Forex broker make it simple to backtest with your own existing data. With a little work, you can prepare a dataset aligned with news trends and see how different strategies would have worked out around then.
The Correlation Between Positivity and Trading Behavior
This brings us to an important point. Many people who follow the news for potential leads on their trading tend to consider selling immediately upon hearing negative news. On the other hand, reading a good headline often prompts people to invest in a certain stock. A large percentage of traders fall for this trap, including some more experienced ones in certain cases.
This is why some experts have been strongly advocating for the decoupling of news trends and selling behavior in traders. Unfortunately, this is behavior that’s been learned over a long period of time, and it will take a while to undo the damage. Various counterexamples have surfaced already, and have received a lot of attention, which will hopefully help swing the momentum in the right direction. But only time will tell.
The News Cycle
It’s also important to consider the traditional news cycle and its impact on the trading market. Major headlines tend to follow a specific, usually predictable cycle, where hype goes up and down as the news propagates through the internet and society. Social media has had a major impact on redefining the news cycle, but interestingly enough, it still revolves around a 24-hour loop for the most part.
Some smarter traders have been paying attention to that and have been exploring the correlation between the highs and lows of the cycle, and its impact on the corresponding stocks. As it turns out, there’s a lot of valuable data to be extracted from this, although it will likely require some more in-depth technical analysis involving large data sets.
Breaking News
Some people consider breaking news to be a unique category, but that’s rarely the case. The only thing special about breaking news is their unpredictable nature – otherwise, they tend to fall into the same patterns that we usually observe in other reports. But even that unpredictability isn’t such a unique feature, as the average person can rarely do anything to accurately anticipate upcoming press releases by a given company.
Still, despite that, these events do tend to impact the market in more dramatic ways and are important to pay attention to for any serious investor. Even if you know (roughly) how news reports on something like the announcement that one country has decided to invade another are going to develop over the next few days, it would be foolish to ignore the different circumstances that a development like this creates.
The Rise of AI
Artificial intelligence is being talked about a lot lately, and it should be no surprise that it has a major presence in both the news sector, as well as trading markets. Some researchers have been putting a lot of effort into leveraging this technology to investigate previously unknown links between these fields, or simply to trade more efficiently.
And while this has been showing a lot of promise, it should be approached with caution. It can take a lot of time for major solutions like this to stabilize and start producing consistent results, and we shouldn’t blindly follow everything that AI analysis is telling us about the relationship between the news and the market.
We’re still exploring many of these points and uncovering new details about them. As we mentioned earlier, even though the link between global news and trading behavior isn’t anything new, there’s still a lot to learn about that correlation. And with new technological solutions on the horizon that could potentially make this easier, it will certainly be interesting to follow that progress over the next few years. Those taking advantage of these trends to their full potential will likely stand to gain a lot later.
