The Pitfalls of News Trading Strategies // Ep. 4

In This Episode

• How Netflix was messing with Hugh's head
• Why the news can be highly biased
• Where to get good fundamental and technical points of view

Read the Transcript:

Hugh: All right Walter, let's talk a little bit about the media and the effect it can have in your mindset.

Walter: For me the biggest thing about the media is that the guys that you listen to on those business channels who talk about the markets and stuff at least half of them are wrong. Sometimes more than half.

You had situations like especially where there's a roaring bubble or something, it's really hard to find the dissenters. They're very few and sometimes they don't get any airplay. Peter Schiff comes to mind.

So people who follow Peter Schiff would know he was one of the lone voices in 2006-2007 saying that the housing market was going to crash in the US and he was literally laughed off the TV. All the other guests thought you were an idiot literally and he ended up being right of course.

I think it's easy to read newspapers like The Economist or Sky News or CNBC in the States or whatever it is in your country. It's easy to kind of get locked into that and I think that's a mistake.

FXStreet is interesting because at least they have, in FX street they have multiple points of view. In other words like fundamental points of view and technical points of view which I think are really good.

Usually when you're looking at the TV, you are only going to get the fundamental point of view. That's why when I talk to people about trading that don't know anything about it they often go, “Wow, how do you keep on track of all the world events and stuff like that?”

They always talk about that because they assume that's what it is. That isn't really necessarily the case for a lot of retail traders who are technical like I am and you are. I think the problem with that is the social proof.

You get into following that cognitive bias called social proof. You guys can look that up but essentially following what everyone else does. I think that's the issue with the media for me.

That's the biggest one is that you can kind of get sucked into that mindset. If everyone says the Euro is going up on TV, it's going up, right? There's all these reasons why or it has to go up or you know oil has to go up. It's almost at zero or whatever.

Hugh: Hey there! I hope you find this episode useful. I just want to let you know that Walter and I give away something valuable every month that helps traders improve their skills. You can enter to win by simply leaving an iTunes review and leaving a comment on our YouTube videos.

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Hugh: I guess I can't fault a lot of traders for doing that because when you're starting out you kind of need that frame of reference. It's something to look at but definitely can affect and you don't even know what the agendas are behind some of those tips or whatever.

Walter: That's a good point. Like in Australia, the number one advertiser in Australia and all the papers, — all the newspapers and stuff — it's the real estate market. So the local newspapers they're reticent to talk about anything in terms of like a bubble or anything like that because that's their livelihood.

They literally make their money. If it weren't for real estate agents advertising, I don't see how they would exist. This is crazy. These newspapers you have to keep in mind like where are they getting their money from.

The same thing like every time you see someone on CNBC or whatever on those business channels you know a lot of times they're fund managers, right? And that's why I think they're supposed to disclose.

They're supposed to disclose things like, “Oh, I don't hold any positions at United Airlines” or whatever because they know that they can kind of sway opinion. Which is crazy when you think about it.

Sway opinion just by a 15-minute presentation on TV and a quick little five question interview and all of a sudden that changes the demand for a stock or something like that. So it's crazy.

Hugh: It is crazy.

Walter: It is pretty crazy.

Hugh: Maybe we can take it one step further also. I recently stopped watching Netflix. I realized the programming was a lot of gloom and doom and end-of-the-world kind of stuff. So what do you think about that, just the overall general media?

Walter: It's so funny you say that. I have a friend from high school and she's like an executive at Netflix. She posted something on her Facebook. I'm like, “Dude, what is that?” She's like, “Oh, it was…” — she was at Nickelodeon and then she jumped ship to Netflix and she's like — “Oh, that's like a show on Nickelodeon.”

I'm like, “Oh!” — It was a cartoon character or something but someone drew it on the ground or something like in a concrete or a wet concrete. — “Dude, what is that? Looks like a dead horse or something?” She's like, “No. that's a cartoon that I worked on at Nickelodeon before I went to Netflix.”

It is interesting because I think if you follow the money and see where like, who owns what. It's really interesting to see. There's some really good books on this. Maybe we can post them in the show notes.

It's a really good book on which corporation is on which. It's a really kind of a giant shell game and you can kind of see what the agenda is. What would happen if you become fearful of a certain thing.

What are people likely to do? What are they likely to buy? What are they likely to see, you know, all those sorts of things. We know for example like if you blast a headline on the internet or on a newspaper that says something really great like, “Oh, amazing. A girl who lost legs can walk again with Bionic legs.”

You put that on there versus you know, “A girl dies in a tragic car accident last night and her family's so sad.” They know which one is going to get more eyeballs on it. They know that it's the gloom and doom. It's so interesting like the people that I know who don't spend a lot of time and I don't watch TV.

I would say though that it's hard even when you're on the internet a lot. It's hard to kind of switch off that news sometimes because it kind of comes into your face. They make it really easy so that's difficult but the people I know who don't spend a lot of time watching TV, they seem happier. It’s obvious.

Hugh: I noticed that too. I'd stop watching for a week and I'd watch for a week and then I noticed I feel like a little bit, not depressed but just not as happy.

Walter: Yes, it’s so weird. It's like they need it. They need that fear to make you pay attention. Fear makes you pay attention more. I think that's kind of how we're wired. I don't fault them because they do that.

If you think about it like when you really want to get healthy. When you have a health scare. People don't walk around going, “Oh, I don't want to get fat. I don’t want to get fat” Or “I don't want to get heart disease. I don't want to get heart disease. I don’t want to get heart disease.”

What happens is they get a scare and the doctor says, “Dude, you’ve got to lose twenty pounds or something happens to your heart” or whatever and then you're like, “Holy crap! I need to get healthy.” Your doctor gets paid when you're sick. Doctors doesn't get paid when you're healthy.

I think that's kind of how we're wired. We just think that we keep things going the way they are until something scares us and that kind of shocks us out of our sleep and we go, “Whoa! What's going on here?” We have to pay attention to that and I think it's kind of inbuilt the way we're wired.

Hugh: It's true and that's what sells. So you know that's what keeps them in business or whatever so I get that too. All right, cool. Thanks, Walter.

Walter: Thanks.

Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.

Why News Trading Can Be Dangerous

A lot of new traders and people who don't know anything about trading think that successful trading is based entirely on being able to interpret the news correctly.

Some traders to use fundamental analysis to make trading decisions, but they really understand how to filter news stories and separate fact from fiction. We'll show you why the news can be misleading and what to look out for.

We also mention how news can be heavily influenced by owners of the respective companies. This video will show you the structure of mass media ownership in the US and why you may not be getting the entire story.

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Each action counts for one entry in the month that it was posted. We will pick a winner at random from the entries that month.

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It will usually be something that will help you improve your trading psychology.

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