trade the chart or trade the news
Trading Basics

Trade The Chart Or Trade The News?

Priced in na ang news sa chart or stock price!”

“Umangat ang stock price hindi dahil sa chart kundi dahil sa news!”

“TA at chart lang! Walang kwenta ang FA at news news na yan!”

“Walang kwenta ang TA. FA at news pa rin ang basehan ng stock market!”

New traders/investors debate about this all the time. I think It’s time for me to put a rest on this matter. I hate misinformation. I hate ignorance. Let me educate you on this using nothing but facts.

You often hear the phrase “priced in na ang news sa chart/stock price.” Do you know what does it really mean?

Let’s say for example SM announced today that it was going to acquire some of ABA (AbaCore Capital HoldingsInc) shares including a joint-venture projects with ABA on a deal worth 100 billion pesos in a press release and that the deal would close at the end of January 2020. Investors may read this as great news and start purchasing the stock right away in anticipation of the deal later this month. As a result within hours or days of the announcement, ABA stock has increased in value to include the 100 billion deal. Meaning the acquisition was “priced in” to the stock price of ABA before the event even happens.

Based sa example sa taas ay tumaas ang price ng ABA dahil sa news of a 100 billion deal. The deal did not happen yet kasi end ng January 2020 pa maclose but the market priced in that event. Lahat ng traders alam ang information about ky ABA at that time kaya more or less alam na nila ang value ni ABA at that time.

Another example para maging mas malinaw. Imagine mo na a week bago lumabas ang news about sa 100 billion deal ay alam na ng JP Morgan na may mangyayare na deal. Wala pang nakakaalam ng balita na yun maliban sa JP Morgan kaya ang price ni ABA at that time ay hindi pa tumataas. Hindi pa priced in sa price ni ABA ang upcoming 100 billion deal. Since alam ni JP Morgan na may parating na deal, he will buy significant shares ky ABA. The price obviously will change as the supply/demand has changed once this single investor ( JP Morgan) decides to buy. Dadami demand dahil kay JP Morgan. If dumami ang demand at konti ang supply tataas ang price ni ABA. This new price of ABA at time right before the event, represents what the market expects to be the new price of ABA once the event happens. In other words, they ‘price in’ what they expect will happen in the future.

Priced simply means that all available information is already reflected in the stock price. Chart represents the stock price so ganun din yun when traders say priced in na sa chart.

So clear na tayo sa idea na priced in na sa price/chart ang news. Lets move on sa idea na umaangat at bumabagsak ang stock price dahil sa news. Yes! That is also true. News does affect stock prices. Some news has no effect sa stock price yet others meron significant effect. The debate about news being priced in na sa chart at news nagpapataas or nagpapabagsak sa stock price is actually both true.

Let me put an emphasis muna sa idea about news then I will proceed sa chart later sa blog post na to. Lahat facts lang. Let me remove ignorance sa traders.

NEWS

News is never good or bad when it comes to stock prices. Its always about relative to expectations. Example is earnings report. May earnings report na maganda pero bumabagsak ang price at meron din naman na earning report na panget pero tumataas ang price. If you wonder noon bakit ganito. Today is your lucky day kasi sasagutin ko yan. 

Ganito kasi yan. Supply at demand ang core principle ng stock price movement. If marami buyers kesa sa sellers tataas ang price. If marami sellers kesa sa buyers babagsak. I want you to remember that kasi It will be useful mamaya. 

Example natin si X or Xurpas. Naglabas kunyare si X ng earnings report na for this year ang 300% increase siya sa earnings. Analysts at mga reporters are excited magreport ng balita na yan. Mga employee ng Xurpas tuwang tuwa sa increase. Bumagsak ang stock price ni X after niya magrelease ng earnings report. Magtataka ka bakit ganun. It has nothing to do with what the media or analysts say. It has nothing to do with what Xurpas’ employees think. It’s traders expectations as a whole. 300% ang increase ng earnings pero ang iniexpect ng karamihan sa traders (na pumipindot ng buy at sell button) kasama mga brokers ay 700% ang increase ng earnings ni X. The moment na hindi na meet ni X expectations ng mga tao na responsible s pag buy and sell sa stock niya magbebentahan ang karamihan ng mga nag expect ng 700% which will result sa pag bagsak sa stock price ni X. 

Lets say naman earnings report ni X for the third quarter ay negative 50%. After maglabas ng earnings report si X ay lumipad or tumaas ang stock price neto. Bakit ganun? Most ng traders including brokers expected na negative 90% ang earnings ni X sa third quarter. Nung nilabas ni Z na negative 50% lang ay mas ok yun kesa sa expectation ng karamihan kaya bibilhin nila ang stock ni X at ang result nito ay tataas ang stock price ni X. That’s the idea about expectations. If earnings the news is better than expected tataas stock price. If the news is worse than expected babagsak ang price. This is not about one or two persons expectations lang. I’m talking about general or expectations ng nakararami. One good example is expectation ni Marvin Germo na tataas ang stock price ng JFC after the Coffee Bean & Tea Leaf deal dahil maganda na move ang pag acquire while the rest of the market/traders expect na babagsak ang JFC dahil panget na move ang pag acquire ng company na at loss ang books.

“BUY ON RUMOR SELL ON NEWS”

I find this phrase really funny. It’s not the phrase itself but the ignorance that comes with it. All those conspiracy theories at gossips. “May paparating na deal si ganito.” “May good news si ganyan.” “May project si ganito.” ” May ganito si ganyan.”

You may have seen a stock price continuously rise and after 2 days you will see that most of discussion sa social media is about some good news to come sa stock na yun. The time when the news is being published the stock starts falling rapidly. On rumor people are bullish but when the news appeared everyone starts selling though it is a good news. It is not na bumili sila sa rumor at nag sell sa news. Yung expectation ng karamihan mataas at ang lumabas na balita hindi na meet ang expectation nila kaya they sell. It’s like expecting a car as a gift on your birthday. You dream about it for weeks. Nakikita mo na sarili mo na tatawag sa barkada mo saying “Tara punta tayong baguio. Roadtrip tayo!” Pagdating ng birthday mo ang regalo sayo ng parents mo is a brand new Macbook Pro. Mahal at maganda ang Macbook Pro and any person na regaluhan ng parents niya ng ganun sa birthday niya ay matutuwa but since car ang iniexpect mo kaya malungkot ka despite having a Macbook Pro.

Chart.

Let us move on sa chart. Para ma drive ko ang point punta muna kayo here at e click ang
Weekly Market Watch January 20, 2020.

Let me take the first stock na may disclosure at lumipad. In this case it is WEB.

Umangat si WEB at may nakalagay sa dulo na disclosure which is C00421-2020. Let us take a look what it is. Go sa pse edge. Find WEB at punta sa company disclosures para makita natin kung ano yun. Here’s the link.

It says clarification of news report.

In short, WEB confirmed na they are about to seal a partnership with an online operator. Bago ko e present ang chart let me take you back a few of years back para mas maliwanag ang nangyare ky WEB.

This news came out August 3, 2016.

This is what hapened on August 4 onwards.

Balik tayo sa pag disclose ni WEB na may upcoming partnership deal siya. WEB stock went up mula 2.53 to 3.79 at close. A whooping 49.80%.

Let me drive my point na even without knowing the news eh magrereflect sa chart yun. Look at this.

I’m a daytrader. I usually day trade talaga but I do all sorts of trading mula day to swing to position depende sa galaw ng market. My sister bought WEB kanina but I was not able to kasi I was busy with something else. Let me just show you na kahit di mo alam na may news makikita mo si web. Una explosive ang volume niya kanina meaning marami interested sa kanya. If you switched to 15 minutes na timeframe at mag plot ng ALMA. For those who want help sa daytrading strategies I wrote a blog for it here.

Dahil sa explosive volume niya pwede mo e daytrade with ALMA sa 15min na TF. You could have three possible entries and waiting ka na lang exit mo. Sa may hawak WEB na di alam paano eh exit ayan may tip na kayo.

One more example to drive my point sa chart. Take a look at ACEPH or formerly known as PHEN. Back in Jan 9, 2019 naglabas ang ACEPH ng disclosure tungkol sa pagbili sa kanila ng Ayala or AC corporation.

Without knowing any news you could have traded this using MAMA.

Mula Dec 18 which is three weeks before disclosure ng ACEPH ay nagpick up na volume nito. Sa araw mismo ng disclosure ay bumagsak angAceph. Buy on rumor sell on news na naman? Nope. It’s actually the disappointment or ang hindi pag meet initially ng expectations ng traders sa amount na pagbili ng AC sa Aceph. The market (traders, brokers, insti) expected AC to grossly overpay sa Aceph since at that time above 1 peso na si ACEPH. They expected AC to buy ACEPH on premium. After lumabas ng diclosure medyu vague ang amount kaya majority ng expectation ng traders indi na meet so they sold their shares causing ACEPH t go down sa araw ng paglabas ng disclosure. If you look at the chart even without knowledge of any news you could have gained close to 50% if you traded ACEPH back then using MAMA.

I could present you a lot more chart as examples. Nandiyan si LOTO, MWC, ISM, NOW, TBGI and a lot more but I think get na ninyo ang point.

I presented you with facts. Wala pa opinion ko doon. Pure facts lang. Now let me give you my opinion. Trade the chart ba o trade the news? I will go with trade the charts. Let me enlighten you why.

Markets are an information discounting mechanism. What is announced on the news channels is already anticipated before it happens. It may or may not be correct, but markets move on the basis of anticipating results and not results themselves. So, if you want to trade based on news, understand that the price movement on news day is not the correct indication of the future because that has already been discounted. Now, understand how the market reacted to the result and make a future assumption based on that. It’s the only viable strategy.

Those traders who keep saying “trade the news” don’t really understand what they are trading. Its not really the news yung nagbibigay ng opportunity sayo. It’s the delay in information. It’s the delay ng news. You see, what empowers people to trade on news is the delay in the broadcasting of the news to a bigger number of investors through news portals and social media. Oftentimes the news we learn does not get fully propagated, which means the intended audience will not learn about it until late in the evening, when they arrive home from work. By that time, you will have already bought the stock and you can just wait for the opportunity to sell it for a higher price shortly after. When you are consistently monitoring the early-phase sources of information, the majority of which are online, you learn the relevant news first and can start making buy recommendation. As more and more investors pick up the news, volume and price begin to ascend based on how good the news really is for the economy. What makes trading on the news profitable is the gradual dissemination of the news from a smaller to a bigger number of investors. This just proves that time delays can actually be exploited for profit. Average investors just aren’t quick enough. However, please note that trading on news alone is quite a dangerous sport. Bakit dangerous? Dangerous kasi retailer ka. You get  left over information/news. Try mo lang imagine. May news na bibilhin ni MPI si MED. Bago ma finalize ang deal na yan months before pa na planning. Marami ng tao ang involved so information about it is out sa few people. Lets say na finalize na. People involved on the deal can’t really benefit much sa igagalaw ng stock price kasi illegal ang insider information at may rule ang PSE against buying na may prior knowledge ka sa information na hindi pa na release sa public. Meron din rule na a month after ka pa pwede bumili ng sarili mong stock after nyo maglabas ng malaking disclosure. All rules na naviolate ni Calata. Lets say na finalize na ang deal. Send sa PSE for disclosure. Here is the listing and disclosure rules if you want to dig deep. If you want yung disclosure rules lang here is a pdf na pwede mo madownload. After masend sa PSE e send na sa national Media or newspaper. The journalist receiving the information nauna pa sayo malaman ang news as well as their family at friends. After ma print sa newspaper or lumabas sa social media saka mo pa lang malalaman ang news If you really think about it as a retailer sobrang nasa disadvantage ka if you rely sa news.

Another reason na mas okey if e trade mo ang chart kasi ganito. Hindi lahat ng news ay may effect sa price. Lets take for example ang mga disclosures sa PSE EDGE today.

Look at JFC for example may disclosure siya about saying JFC to Issue US$600 Million Guaranteed Senior Perpetual Securities but it did not push JFC stock price ng sobrang taas.

Well, I just noticed na MAMA pala si JFC.

Ang pagtrade ng news maraming uncertainty plus hindi ka maka establish ng proper na trading plan. You can’t just say bu this stock dahil sa upcoming good news. Buy where? At what price?Saan magseel? Ano gagawin if hindi nagmaterialize?

Marami ang nagtitrade ng news not dahil tested and proven na best strategy yun but dahil napakadali na paraan yun. All you need is mag abang ng news/chismis. Marami din nagtitrade ng news dahil di nila alam basahin o gamitin ang chart. A chart is nothing but a representation lang ng movement ng price.”Nag open si stock ganito sa price na to. Dito angclose. Ito Highest price niya sa araw na to. Ito lowest price niya.” Kaya I suggest sa mga baguhan to understand things at huwag maging ignorant. Hindi complicated ang chart. It looks colicated but trust me it’s not. I made a blog explaining what a chart is at paano basahin. You can read it here and also about candles here.

I trade using charts. I do not allow news and views to manipulate my thought process. It does not mean I’m right and all traders who trade news are wrong. It simply means that trading chart makes sense to me and it works for me. The question now is….what works for you?

I’m currently on my 7th trade this year.

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