Do you use the news to make your trading decisions? Or perhaps you’ve been wondering if you should learn more about trading fundamentals in relation to economic news and news in general. In Episode 562 of The Traders Podcast, your hosts Rob Booker and the producer Jason Pyles discuss trading off the news cycles and how economic fears and hopes can influence the markets. Join us to learn more!
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Links for this episode:
Subscribe to Rob’s YouTube channel here: https://youtube.com/robbooker
Rob on Twitter: @RobBooker
The Traders Podcast on Twitter: @TradersPodcast
Jason’s movie podcasts:
http://moviepodcast.network/ – A group of eight movie-related podcasts covering new movie releases and many genres: sci-fi, horror, western, etc.
Full Episode Transcript:
Rob: I call this meeting to order.
Jason: All right.
Rob: The Traders Podcast Episode 562, I believe.
Jason: I think so. It might be right.
Rob: I’m not quite sure, but I believe it’s 562 and want to welcome our new listeners to the podcast. If you want to start with the Traders podcast and you’re brand new to the show, might I recommend episode one which you can find at traderspodcast.com. And if you like the show, we’d love to hear from you and you can leave a comment on the episode post at traderspodcast.com. Just leave a comment. We’ll maybe read it on the air, answer your question. That kind of thing.
Okay, let me ask you a question Jason. Nothing in mind, I just want to ask you, right now in the United States, as we’re talking and as we’re recording this message, what is the big news?
Jason: Oh, the big news?
Rob: First thing that comes to mind.
Jason: Presently the NFL people kneeling and people standing for the National Anthem.
Rob: Okay, it was easy. You came up with it. It rolled right off the tongue. It didn’t take you a long time to think about it. Now, there are some days and times when answering that question is a little bit more difficult. There are quiet news cycles, and during those quiet news cycles, there really isn’t a major thing. You might have said recently, Oh well it’s Hurricane Irma or Hurricane Harvey or this devastation in Puerto Rico,’ from I think it was Maria. Whatever it was. But from time to time, there’s no major news but usually you can say, with absolute certainty, this is what the major thing that I’m hearing about in the news is. And today on the podcast, what I’d like to do is address how that relates to the world of trading, because there are traders out there who announce that fundamentals or economic news or just news in general, is the major driver of price action. And because it’s the major driver of price action, that it is the sole thing that someone should focus upon.
Now hey listen, I’m no one to argue with focus and I think that’s a great idea. And I think that if you do want to focus on fundamentals and you want to make that a strategy, then focus on it exclusively and do great at that. And if you want to do that, focus on watching for the release of the economic news reports that come out and focus on learning how to trade short term strategies that are in line with whatever numbers were released or the surprise, or I don’t know, whatever else.
Jason: Is it okay if I have three different TVs to watch?
Jason: Okay, awesome.
Rob: There were these commercials about trading back in the day when Yahoo was a thing. And I wish I could find this commercial online, but this guy wakes up and there’s a TV with Yahoo Finance on it. And then he walks in the kitchen, there’s a TV or monitor with Yahoo Finance on it. Everywhere he goes in the house, he’s looking at economic news or something and everywhere he goes, and I thought, Oh, that guy’s got the life.
Rob: Or it was like an E Trade commercial but I really think it was Yahoo. But anyway, I was like, Yeah, that’s the best ever. That’s amazing. And now I want to get away from that stuff and I just want to sit and read and stuff. Okay, but yes you can have three TVs and whatever else or you can get a Bloomberg terminal and focus on the news and economics and diving really deep into that one subject area. But I want to just speak about a particular way that our listeners can focus on the news and use it to benefit their trading or to avoid costly mistakes or big problems.
Rob: So the other big economic and political news that’s going on right now is that there is a major conflict politically between North Korea and the United States.
Rob: And it seems to have escalated into some pretty significant tension and that tension has resulted in the financial markets gyrating more wildly than usually and risk assets like the stock market’s dropping, and safe haven stuff like the Japanese yen, rising. And it really as of the time of this recording, it’s still really in its infant stages and we’re not seeing a lot of that yet. And by the time you listen to this episode, maybe a lot of this has already played out. But the lessons that I want to talk about right now are still the same and still going to be applicable. And here they are.
The question you want to ask at a time like this is what is the major political or news related influence right now? What is influencing the collective consciousness of the nation wherever you live? And in the United States right now, it’s the National Football Association and kneeling or standing during the National Anthem. And then you’re gonna ask yourself, does that inspire fear or hope or indifference in the financial markets? What would your opinion about that be Jason?
Jason: I think that would be indifference for that particular subject.
Rob: Right, it’s indifference. And during that time, if that’s the only major economic news or whatever news, if that’s the only thing, then there is no reason to incorporate economic fundamentals in your analysis. And I know some of you listening disagree with me. But I’m talking about the big moves. Of course, if there’s a consumer price information release that day you could use that for short term trading or whatever. I’m speaking about something bigger and that has more influence.
Now we’ll move on to the North Korea. Do you think that the North Korean news which is capturing the fearful imaginations of so many people, do you think that inspires fear, hope or indifference in the financial markets?
Jason: Well, it seems fear, but my understanding of trading is, traders can usually benefit from other people’s sorrow and pain. Is that right Rob?
Rob: That can be true, yeah. So let’s talk about that. That’s a great segue way into what we’re doing here. Okay, perfect. Because the North Korea situation is so dominant and its on the front pages, and because it does lead to fear, what we then look at is we have some options and we want to be careful. Number one, we don’t want to be going long or buying lots of risk-related assets. We don’t want to go long, lots of technology stocks. We don’t want to go long, the broad financial markets. We don’t want to do that immediately because that fear is pushing the markets lower and causing people to, in other words, worry and that worry is expressing itself through declining prices. And what you can do in a situation like that, as that news dominates and as that news escalates and as that news sort of just circles on top of each other and comes back around on itself, you can basically turn that into a trade that lasts more than one day.
Last week, I shorted the Euro Japanese yen, and I did that very publicly and I did that on Twitter and on my big telegram channel that everybody follows me on, and in my members area and whatever else, and I shorted the Euro Japanese yen and it dropped significantly. And the reason that I did it was primarily economic or news related. This news was gathering steam, hitting the front pages and the only thing that it could result in is fear. Now I could have done what you just mentioned, Jason. In a situation where there’s a lot of fear, like a financial crisis or whatever else, I can wait for that fear to dissipate or in another words, I can use that fear as an opportunity to buy financial instruments that I have wanted to buy for a while and I can buy them on sale after they’ve dropped.
Rob: I can use every drop of information to sort of enter the market and collect some of this asset that I know I really like.
Jason: That’s neat.
Rob: And you could do either one of those two things. I’ll give you another example. So when Donald Trump was elected president, I know this sounds like I’m just bragging but maybe I am a little bit, but I said back in March of 2016, there’s no way he loses. He’s absolutely gonna win the presidency and I remember my mom called me. She goes, Oh that’s so great. I’m so glad. I really hope you’re right. And I was like, You’re a Donald Trump supporter? I was like, What? What? I don’t understand this but okay. And a lot of people were really happy with me because I said that, and a lot of people really hated me because I said that. I think all told that week, 150,000 people heard me say that, that week.
Jason: Yeah, it’s not like you were making a value judgment, right? You were just making a prediction. Right.
Rob: Right. Yeah. And then, I made a value judgment and said, When he wins, the dollar will fall and gold will rise within 12 months, gold will rise to $2,000. Was totally right about the election and totally wrong about the result. Totally wrong about that. He got elected and all of a sudden his promise to put a ton of money into infrastructure and possibly lower taxes, just pushed the dollar up and be protectionist, pushed the dollar up and the financial markets just went crazy. They loved it and then gold fell. And I was wrong about all of those things.
But, okay, that doesn’t matter, that’s not the most important part. The most important part of it is, is that I could either have said, All right, what I’m going to do is, I’m going to go ahead and I’m gonna just trade this sentiment. I’m going to go with this sentiment. I might not have thought it was going to happen but I’m gonna view it, it’s reality. It is what is happening and so I’m gonna go along with it. I’m just gonna basically ride this thing all the way up. I’m gonna just go with it because the news is dominating, it’s causing this momentum and I’m going to ride it.
Or, just like you said, everybody else’s euphoria could be an opportunity for me to get in and trade against them when the time is right. And so the other way to play it was, to wait until the end of last year when the dollar sort of topped out after a giant run upward, the dollar kind of topped out and then started to fall. And I could have waited for the euphoria to settle down and dissipate and I could have used this rally in the dollar for example, to start shorting the dollar every time it moved up let’s say 5%. Just like you said, I could basically fade euphoria or fade fear. Go the opposite direction that the entire crowd is going and use that as an opportunity.
Rob: And I think that’s the real way that you play the news or whatever you want to call it. That’s the way you do it is you either take the sentiment as it is right now, you say, Does that inspire fear or hope? And then you trade that hope or fear. Or you say, That’s not gonna last forever. I’m gonna start fading that or trading against it and building a position. And those are some of the biggest trades that you can ever take in your whole life.
Jason: Yeah, because it’s not a matter of is it going to move the other way. You know that that’s gonna happen, that’s inevitable. But the question is, when, right? So that’s a timing matter.
Rob: Yeah, and because most people are pretty good at picking direction, because these are obvious things that nothing can go up forever and any euphoria associated with Donald Trump’s election or any fear associated with the North Korea situation dissipates over time, because it’s just a reality, that will eventually turn around. The real question is how do you build a position slowly and surely without losing your shirt and keeping your losses down. How do you build a position over time and can you become patient enough? Can you do that? Are you able to be patient enough to build that position? That’s the real question.
Jason: Yes, yes. Tricky.
Rob: So in other words, I don’t know what’s happening right now in the markets, but I’m long the yen right now anyway, as most of the yen pairs, the Euro yen, the Aussie yen and the stock market, they’re all up. THey’ve all gone up and so as they’ve gone up, I’ve wanted to basically fade that euphoria and this North Korea situation is sort of the catalyst that turns all that stuff around. That one news reporter, or one news event, or one news cycle ends and then another thing picks it up and carries it in the other direction. And that seems to be or appears to be what might be happening now. And so I’m kind of hoping and maybe I’ll get lucky, that I’m gonna be able to catch the beginning stages of something that maybe lasts for a long time and travels in the opposite direction. Maybe. If not, I’ll just stop out and not worry about it.
Jason: Yeah. Set your stop losses, right Rob?
Rob: Yeah, yeah. Maybe you’re right, maybe you’re wrong. But if you’re wrong, just get out and just go back in later on with whatever. Exactly.
Jason: Yeah, it’s simple.
Rob: Where can I go to hear more about movies?
Jason: Well, you could go to MoviePodcast.Network. We have eight different shows there and it talks about all different kinds of movies, like sci-fi movies, westerns, horror movies, new stuff that’s in theaters. So yeah, check it out, MoviePodcast.Network.
Rob: That sounds amazing. As of the time that we are discussing all of this stuff, what are you going to see this weekend?
Jason: Oh yes, American Made, the new Tom Cruise movie. Have you seen trailers for that?
Rob: Oh yeah, yeah. He’s like a crazy wild adventure guy.
Jason: Yeah, but once again, on an airplane. It’s like you can’t have a Tom Cruise movie where he’s not flying in airplanes improperly.
Rob: Did you like the Jack Reacher movies?
Jason: I liked the first one. I did not like the second one.
Rob: Yeah, okay agreed. I didn’t even get through the second one.
Jason: Yeah, yeah. Agreed. I know what you mean. Yes. The first one’s very good though and it was set in Pittsburgh, our old stomping grounds.
Rob: Oh. Oh right.
Jason: Thereabouts, right?
Rob: Yeah, okay.
Jason: That was kind of cool.
Rob: All right, well, Jason thanks for that. And thanks for listening our dear friends. You can go to traderspodcast.com, comment on the episode. Don’t forget in iTunes, we’d love it if you’d click that subscribe button in iTunes, that helps us out. That helps the show. That helps us all, helps us all, helps all people of all walks of life. Not really, just helps us. Just me and Jason.
Jason: That’s right.
Rob: Hopefully that’s worth it still the same. We love you all. We’ll see you next time. Bye for now.