Trading news on the chart before the real news comes out

So often, I enter trades right before big news comes out.

Do I have inside information?

Yes I do.

Is it illegal?  Nope.

All the news I needed showed up right on the chart.  Plain as day…news that anyone could see.  It was all right there in the pricing and volume behavior.

To highlight this, I wanted to walk you through a recent swing trade I took…going long in the cryptocurrency NANO (as a side note, I’ve been trading crypto’s recently and will be putting together a post highlighting what I’ve noticed to be the major advantages and disadvantages trading cryptocurrency).

NANO trade setup analysis

First take a look at this tweet I posted shortly after I took a trade, going long on NANO on the morning of 11/4/19:

I was drawn to this trade for a few reasons…

First, it was finding support from a pullback from recent highs that occurred on 10/31/19 where it hit the horizontal line of resistance (which was prior support).  You can see that it honored the intermediate uptrend line that I drew on the chart, holding and then bouncing off of it.

Second, at the time I took the trade, it was poised to break through that pretty significant horizontal resistance/support line.

Third, look at the green bars as the priced moved sharply upward.  Most importantly, take a look at the volume spike that I marked with the purple arrow towards the bottom of the chart.  That spike was sharply higher!  Not only that, it was occuring at the perfect point, where it had found support, and was starting to break through the horizontal resistance area.

This trade looked so amazing when I took it that I just had to take a snapshot of the chart put out a tweet about it.

The next day, news came out about NANO

…here is a tweet with the news:


Kraken, a very large and significant exchange based in the United States, would be listing NANO for trading on their site.

This was huge news, something the NANO community had been hoping would happen…and here it was.

At this point, the price of NANO on other exchanges such as Binance, Kucoin and other started surging.  The volume increased rapidly as everyone starting piling into the trade.

Chart of NANO after this news came out:

What a move!

Take a look at the lightly shaded green area on the exact same chart, but now showing what happened after I took the trade.

The volume continued surging before the news came out, the price consolidated a bit and then boom…all hell broke loose!

Look at the volume pouring in as everyone and their mother piled into the trade after the news came out.  What is so interesting, look at how the volume and price move gave clues that something significant was going to happen.

The “news” was in the chart all along

Did I know that Kraken was going to list NANO?

No.

Heck, I didn’t know there would be news coming out at all.

It was just pure luck that this news came out about 24 hours of taking my position.

But was it really luck?  I don’t get too surprised anymore when things like this happen, because the volume and price action were showing that the strength for a swing trade back up was there and perhaps somebody knew something.

In hindsight, yes…I think that someone had to know something before the general public, because the volume looks like people were buying in advance of the news.  But remember, people like me, other traders…probably started to notice the same thing and they started buying too…starting a feedback loop.

Either way, it looked like a good time to get in and as it turned out, fit certainly was!

News hiding in plain sight… What one of the greatest traders has to say about it.

I’ve written about Jesse Livermore before, and for good reason.  His insights from trading over 100 years ago, still apply to this day.  Because the same things happen over and over and over again.

Times change (after all, I was trading cryptocurrency here), but human nature doesn’t change.  From the book, Reminiscences of a Stock Operator, here is what he has to say about trading and news.

Jesse sold a stock right before bad news came out…

Then the news came. It reached me, as important market news often does, before it reached the public.  I myself didn’t sell on the news. I had sold long before, on the stock’s behavior.

 

 

Accurate and reliable information should be given by the public. But what I meant was that the tape did all that was needed for my purpose. As I said before, the reputable newspapers always try to print explanations for market movements. It is news. Their readers demand to know not only what happens in the stock market but why it happens.

Below he describes another situation where he was buying up shares of the railroad company Union Pacific, because he like the way the price and volume were behaving.

I watched the market.   My good friend Union Pacific, I noticed, looked like going up. The price was high, but the stock acted as if it were being accumulated.  I watched it a couple of days without trading in it, and the more I watched it the more convinced I became that it was being bought on balance by somebody who was no piker, somebody who not only had a big bank roll but knew what was what.  Very clever accumulation, I thought. 

 

 

As soon as I was sure of this I naturally began to buy it, at about 160.  It kept on acting all hunky, and so I kept on buying it, five hundred shares at a clip.  The more I bought the stronger it got, without any spurt, and I was feeling very comfortable.  I couldn’t see any reason why that stock shouldn’t go up a great deal more; not with what I read on the tape.

Then Jesse got a call from the president of the brokerage firm, telling him he had insider information that the officers of the company were dumping it as fast as they could and that Jesse should sell asap.

He thought the president of the brokerage was wrong and told him:

“The tape says they’re buying it,” I insisted.

In any case, Jesse, against his better judgement, listened and sold all of his shares.  Then he actually shorted it!

News came out shortly afterwards that Union Pacific had declared a 10% dividend.  The stock price soared.  It didn’t turn out too well for him, as he closes things out here…

What was plain was that I had read the tape accurately and that I had been a ninny to let Ed Harding shake my own resolution.  There was no sense in recriminations, because I had no time to lose; and besides, what’s done is done. So I gave an order to take in my shorts.

Here again, he noticed the volume, noticed the pricing behavior and felt like the stock had room to run.  It was behaving well.  Sure enough, news came out, proving his hunch was correct…and the stock soared.

This is one of the reasons I find technical analysis and trading so fun and you probably do as well!  Almost like a detective, we read the clues and make a educated guess about an outcome.

Have you taken trades before the news?

Let me know if you have similar stories…leave a comment.  I’d like to hear your thoughts or opinions.

-Glenn

 

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