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Every now n then, some traders/friends keep asking... X co. has bad news, shud I Short? Y co.'s no.s r gud, shud I Buy?
My ans wud b, if Good news mean price WILL rise & bad news mean Fall, ten isn't tat sure way of making money?
It doesn't work tat way. Let me elaborate...
1/n
Case 1. Sometimes, Price has factored in upcoming News/ Event. (EMH)
Why this happens?
Smart money/ Promoters/ Politicians hv faster access to information. They create positions well before news is knowns to Panwallahs... n that time biggies cover positions, trapping retail. 2/n
E.g 1
Maruti declared July sales no.s on 1st Aug. Sales drop was massive 36%. Still, price made bottom on 31July itself & price rose since then.
Why?
Biggies anticipating weak no.s were Short in Jul. When actual no.s came, they covered.
(PFA chart.)
3/n
E.g2
OPEC had imp meet on extending oil production cut on 1-2 Jul.
(Theory: Oil productn cut-> less supply-> Higher prices)

But, oil rose for 10+ days BEFORE meeting. Post meeting, it resumed fall (US Shale prodn wasnt cut)
So traders who bought post meet, were trapped
4/N
Case 2.
News/ events not factored in (Inefficient price):
Market can't discount severity of every news/ event efficiently. Specially, wen it comes to geopolitical issues/ decisions (for Economy) or Corporate Governance/ Regulatory or structural changes- deals(for company)
5/n
E.g 1:
DrReddy had US FDA CRL issue yest. Price was consolidating for prior 2 weeks. It gapped down n broke short term Supports AFTER news broke out.

6/n
E.g 2
8Aug Weekly expiry. Trend on Daily down+OI bearish.
2.20pm: News abt rollback on FPI taxes came.
Then, NF rose 160+ points & CE writers- all Shorts were taken to cleaners.
With uncertainty over Govt action, Price didn't factor in news earlier, thus reacted sharply. 7/n
E.g 3
#Reliance AGM: ARAMCO deal & other Biz decisions...
Prior to AGM, price was in 11xx s. It COULDN'T have factored key decisions from AGM.
So when news broke out, big gap up n follow thru happened.
8/n
Case 3:
This is a typical scenario which is quite Gray area. Here, same news affects different stocks differently (Even if stocks are co-related).
9/n
E.g.
4th Jun: Fitch downgraded Credit ratings of #ICICI n #Axis Bank to junk.
Their price moves r way different
- For Axis bank, 4th June was Top; price is 20% down since then.
- But, Icici rose for 1 month & thereafter had choppy move. Even now it is at same level as 4Jun.
10/n
Finally,
as above examples show, there NEED NOT be direct positive correlation between News & price move. Price moves due to reaction of players to the news and not news itself.
n sometimes different traders may interpret same news in different ways.
11/n
My action plan POST news/ event:

- I trade following big guys' footprints. (Analysis thru PA-Volumes-OI)
- So, Trade can be with the news in some cases, and against the news other times. Chart reading is more important than news itself!
n/n
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