Share with everyone about why most of the time when good news comes out, the market tends to go down 😆
💥 "Buy the rumor, sell the news" is a trading strategy and psychological reaction that is very popular in financial markets, especially in crypto, stocks, gold...
- "Buy the rumor": Buy in before the official news is released, based on positive expectations.
- "Sell the news": Sell off when good news is confirmed, because the price often reflects those expectations already.
💥 Example of US CPI news:
- Before the CPI news: The market expects CPI to decrease -> The Fed will lower interest rates -> Coins increase -> Investors start buying in advance, pushing prices up gradually since yesterday.
-->> This is "buy the rumor"
- When the news is announced:
Although it met expectations, the price did not increase significantly further.
Instead, many people take profits because they have bought earlier. There is no momentum to continue increasing when the news is out.
-->> This is "sell the news" – the price turns down despite good news.
💥 Specifically: Prices have already reflected expectations, those who bought early pushed prices up from early on. When the news comes out, there is no strong new buying force.
-->> The news is not too surprising: If the news meets expectations (not far exceeding), the market considers it normal.
-->> Early buyers often take profits right after the news comes out, leading to selling pressure.
--->> On-chain data & exchanges show low trading volume. Lack of cash flow to push prices.
-->> Derivatives & liquidations create pressure: After good news, many margin orders are opened -> The market becomes crowded -> When prices do not continue to rise, those positions are swept out, causing a price drop "domino".
-->> Bots and hedge funds take advantage of high liquidity to push prices down to profit from shorts.
💥💥 What should you do???
- Buy early based on news expectations, but take profits before or immediately after the news comes out.
- If you have not entered a position before, you should not FOMO buy right after good news, as it is easy to buy at the peak.