Markets Are Becoming More Dynamic, And So Should You
For a long time, investors have relied on fundamentals-based investing as a primary basis when trading while technical indicators have often been used to predict short-term trading opportunities. However, due to the dynamic nature of the market, investors have started to look beyond technical indicators such as; price trends and moving averages when trading. In fact, when you look at most analyst recommendations, they are given based on various items such as company events and economic data when recommending the stocks to buy, hold, or sell.
For instance, events such as; recent earnings report, mergers and/or acquisitions, new product release announcements, as well as, entry into new markets have demonstrated that they can affect the stock price of any given company. Stocks tend to make major moves after such events. A good example can be drawn from Apple (AAPL) stock. When the ECB slapped the company with a $14.5 Billion tax bill, Apple shares fell almost 3% on the day. Another example is Deutsche Bank (DB) whose stock plummeted to new lows after the U.S. Department of Justice suggested the European bank pays $14 billion to settle a number of investigations related to mortgage securities.
Analysts and Investors are now deciding on stocks to trade in by trying to anticipate the market based on the company’s outlook rather than just recent price trends. Gone are the days when investors and analysts alike would primarily concentrate on the historical performance of a company’s stock without taking into consideration the impact of new products on the stock price. For effective decision making, investors are now paying close attention to company announcements including; new product launches, legal developments, drug approval progress (for biotech and pharma stocks), quarterly fiscal earnings release; change of senior management; as well as new market ventures.
This kind of information can at times be, massive and diverse, which means that it could be hard to utilize in High-Frequency Trading (HFT) programs for optimum results. However, due to technological advances, developers have designed programs that can quantify this data into actionable trading information, which is then incorporated in various stock trading models. A good example is TradeFinder.net, which is a financial research and data processing platform that allows traders to convert raw information from the web and other sources into meaningful and quantifiable data. Information is gathered from various platforms including, press releases, news, and stocks and options price data, among others.
Why non-price data is so important
Analysts and investors are now finding non-price data just as important as stock price trends when picking their trades. For instance, a sale of an asset or a business line would throw some shocks in the company’s stock. Conversely, when the company moves into new markets or even exits; this could also be reflected in the company’s stock depending on whether or not investors view the decision as a positive move. A good example for this case can be drawn from Alibaba (BABA) whose stock has soared nearly 30% YTD as a result of the company’s implementation of its global expansion strategy.
Investors often become concerned when a company is going through any major changes such as; corporate reorganization, retrenching, mergers & acquisitions etc. This is primarily because such kind of change can lead share prices to stagnate or even fall until investors can feel comfortable with the situation.
Event-driven investing is not new to the market but still some investors tend to discount it as a short-term method of investing. However, when you look closely, you will realize that most major rallies in a stock are actually triggered by these events. The only difference is that some investors pick their trades early whereas others join the wave later on in the rally. It’s pretty obvious that the early bird catches the worm.
Why Using Tech Analysis and Indicators is a Dead End
Technical analysis is a pseudoscientific method of analyzing stocks and has no basis or any statistical validity. People tend to see patterns and correlations where they do not exist. And you can always find “head and shoulders pattern” on any chart, including weather charts or some randomized charts.
On the other hand lagging indicators such as MACD and moving averages claim to make investors make money by spotting trending markets, but in real life, when markets become “choppy” you can easily give away all your profits and a little more on top.
At this point, you can only say that the only good thing lagging indicators have is helping identify trending market. In a dynamic market where stocks are affected by several items, these indicators cannot help you to make a timely decision on whether to buy, hold or sell a stock.
In addition, technical analysis and indicators also give second-hand data instead of first hand. You constantly find yourself trying to analyze some variations of price data instead of focusing on the actual price data. This kind of information can be misleading especially if not used together with periodic market events and company news.
Where to find non-priced data if you aren’t a pro
Event-driven strategies take advantage of earnings releases as well as other one-time events such as Merger Arbitrage.
Merger arbitrage is especially used in the event of an acquisition announcement and it involves buying the stock of the target company and then hedging the purchase by selling short the stock of the acquiring company.
Another example is “Distressed Securities” which involves investing in companies which have been unfairly beaten down and are currently reorganizing.
Another interesting type of event-driven fund is the activist fund, which is predatory in nature. This type takes sizable positions in small, flawed companies and then uses its ownership to force management changes or a restructuring of the balance sheet.
Now, as noted earlier, this information can be overwhelming is taken at face value. As such, novice investors alongside those who do not have the time to sift through hundreds of market data vending platforms on the web can utilize services offered by third party players such as TradeFinder.net, which provide simplified and actionable trading information.
These are easily accessible and affordable services when you compare them with platforms such as Reuters, Bloomberg, or Capital IQ that are very restrictive with regard to who accesses their data while at the same time being significantly expensive.
Disclosure: The material appearing on this article is based on data and information from sources I believe to be accurate and reliable. However, the material is not guaranteed as to accuracy nor ...
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