Buy the RUMOR Sell the NEWS

Buying a security based on speculation and then selling it when the news breaks may seem to be a risky strategy, but it can also be a smart one in the right circumstances.
In most markets, especially financial markets, "buy the rumor, sell the news" occurs. Traders will also transform this concept into a trading strategy based on their predictions for the future.
Assume a trader believes that a forthcoming economic report or global occurrence would affect the price of their asset in a specific way. The rumor process of the strategy is when the trader buys an asset based on this instinct. Once the event passes or the report is released, the news has been made public. The trader then dumps their positions, and the market moves.

How Does 'Buy the Rumor, Sell the News' Work?
Traders and investors in markets other than the foreign exchange market (forex) often buy based on expected future cash flows. Perhaps a company's income is projected to be higher than previously anticipated. Traders would purchase the stock quickly, in this case, to take advantage of higher dividends or stock values. This is also true in forex, but instead of cash flows, traders often respond to expected interest rate shifts. This approach attracts investors who check out undervalued markets. This is the "rumor," which occurs when potential news or information indicates that an asset can generate more future cash flows. The asset is expected to increase in value in the coming weeks or months. Investors can purchase the asset until it is no longer undervalued.
If the rumor is incorrect, or the market has overbought the commodity to the point that it is no longer undervalued, news that falls short of expectations will result in a selloff. Only a surprising news event that outperforms the rumor would keep the stock at its current price. If a positive surprise news event occurs, the value of the asset can rise even further.

Where Does Buy The Rumor Sell The Fact Come From?
Buying the rumor and selling the truth is a piece of stock market advice passed down over the generations. It refers to a situation in which the price of a stock rises as a result of traders buying because of speculation about the business the stock represents. The rumor may be that the business is being bought over by another company or that the company's earnings would be much higher than anticipated. Traders will notice the rumor and begin buying, believing that the rumor will inevitably prove to be true, allowing them to profit handsomely. The part of the saying that says "sell the truth" comes from how a rumor that caused people to buy turns out to be false. The company's profits end up being negative rather than optimistic, causing people to sell huge amounts of stock because the stock price is unlikely to rise now. The phrase "buying the rumor, selling the truth" has a different meaning in the forex market, owing to the fact that rumors are less frequent and the vast majority of traders would not position a trade based on the fact that they have heard a rumor. Traders, on the other hand, will put a trade in anticipation of a news release.
Traders view news releases as a way to make a lot of money quickly; you've already seen how much the market swings when the NFP or FOMC reports are published. Traders try to predict which way the market will shift in response to the news by looking at the expected number for the announcement.


How do rumors affect markets and stock prices?
Markets and stock prices may be influenced by rumors, as traders can open or close positions based on analyst expectations. If enough traders hear and act on the rumor, the price of a stock will move up or down. Traders would typically aim to benefit in the run-up to an announcement, as the impact that the announcement will have on the company's stock has already been "priced in" by the time it is made.


News Traders' Tools and Strategies
News traders employ a variety of techniques, with a particular emphasis on market psychology and historical evidence. Traders, for example, will use historical data, such as previous earnings reports, to forecast how future news, such as an upcoming earnings report, would impact prices. News traders may make informed assumptions about whether a security's price will rise or fall in response to a news story by being acquainted with specific markets. News traders may also use queries and notifications to collect breaking news and compare it with market adjustments on a map.



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DISCLAIMER: I’m not a financial adviser. These videos are for educational purposes only. No official financial advice is being given. Please always check with a professional before making any investments or financial decisions. Your investments are your sole responsibility, these videos merely share my own opinions with no guarantee of gain or losses.