Do you ever see exciting news announced on mainstream financial media that you know is going to impact the stock market… but when you make the trade for yourself, you always end up with a loss?
Wall Street (of course) has a phrase for this (of course): “Buy the rumor, sell the news.”
When you’re a trader, you tend to hear cryptic sayings like this a lot. But what does it mean?
Long story short: By the time the news hits your TV, the opportunity to profit has already passed. But when a rumor is introduced (before the actual news is announced), that’s the phase you want to enter a trade because it’s the time when other investors will get involved.
For example, let’s say you’re trading a stock for $5 a share. The rumor on this stock (this is all hypothetical) is that the company is introducing a new technology that is going to transform the tech and healthcare sector while also merging with two other companies — forming a mega company.
Even though this is all just rumor, the rumor will spread around Wall Street like a wildfire and investors everywhere won’t want to miss out on an opportunity like this.
And so everyone and their mother begin buying the stock because of the crippling fear of missing out (FOMO).
But there’s a reason why trading like this usually never works out in your favor.