Knowledge for traders: What is the strategy of "buying rumors, selling facts"?

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"Buy rumors, sell the truth" is an adage that has existed in the business world for a long time, but it never gets old. Until now, when the business world increasingly appeared in new types of investment, this adage is applied more and more. Especially for crypto traders, this is one of the important strategies for deciding success or failure.

Note: This is an article based on the forex market, but Blogtienao thinks that crypto traders can from this article draw some experience and knowledge for themselves.

What is "buying rumors, selling facts"?

"Buy the rumor, sell the truth" is advice from investors trading in the stock market many years ago.

It relates to a situation: the price of a stock will go higher because it is bought by investors when they hear an "internal" rumor from a certain company.

The rumor could be that company A is being acquired by company B or company C's income is expected to be much higher than expected. Investors heard the rumors and started buying with the belief that the rumors would eventually come true and that they would make a significant amount of money. That is "Buy rumors".

Now on the part "Sell the truth" of the saying. After rumors broke that it was fake news, the actual earnings of that company were completely negative instead of positive, which would cause people to start selling large amounts of stock because they were unsure. that this share price will go up.

In the Forex market, "buy rumor, sell the truth" is interpreted a little differently, mainly because the rumor is not popular and the vast majority of traders will not place trades based on the rumors they have heard. .

However, what traders will do is place the trade on a prediction for an upcoming news.

Traders see news as a way to quickly make money, you may have seen a huge gap in which the market moves when things like NFP or FOMC (Federal Open Market Commission) news. ) appear. This is the same as the crypto market side; every time there is positive news about the SEC, the ETF being approved, the futures market,… it is like the coin prices pump again. Traders try to predict the direction in which the news will make the market move by analyzing the forecasts in the next issue and analyzing the market.

This is a basic explanation in trading "Buy rumors", they will look at the forecasts and think the price will move in the direction that the data shows. And finally, when the news comes out, all traders buy (or sell depending on the data they analyze) and the price will move in the direction the data indicated.

Now comes the part "Sell the truth". If the forecast data is positive for a currency, there will be many traders making buy orders right before the news is released, bank traders will enter the market and place sell orders. You may have seen this happen before if you saw the market news in big, professional newsletters.

Then the news is out, the price will have a big move in one direction before suddenly moving in the opposite direction, then you will see long wicks (long straight lines) on the candles.

This is the "buy rumor, sell the truth" phenomenon: the price increases sharply right after the news appears => trader buys the rumor; and soon the price plummeted => trader sold the truth.

It is important to know when "Buy rumors, sell the truth" or when "Sell rumors, buy truth". “Selling rumors, buying facts” will take place if the rumor is negative for the price of a currency.

Example of "buying rumors, selling facts"

We will now look at a real-world example of people who buy rumors and then sell the truth.

Here we have a reduced battery bar formed by the NFP release on May 6.

We clearly see from this reduced battery bar a long wick. The North tells us that at some point in the process of forming the downward momentum, the market used to increase sharply.

The question is what makes people buy and then sell in such a large number?

The answer is that the trade thinks that the NFP economy will be negative for the USD, which means that the dollar price goes down.

If you look back that day, you will see that the forecast for the NFP is 205.000, lower than the figure given in the previous NFP report. This means that if the number is predicted to be correct, the price of EUR / USD will increase because of the negative news about the USD price.

Just before the NFP is released, traders look at the forecast and find that it is expected to be worse than the previous session, they will be ready to buy using market orders * in the expectation that prices will Increase when news is released.

* Market Order is a requirement to immediately buy or sell financial assets at a market price received by a broker from a customer.

As soon as the NFP is released, all traders buy and the price rises sharply, however the strong uptrend will not be continuous, it will have to go in phases and the market will see a "quiet" time. before making another big move.

The size of the move was increased by traders buying, causing a large number of other traders to jump in to place buy orders as they felt the price would inevitably continue to rise higher.

At a time when the market has grown to such a large distance, it is time for the banks to decide on the appropriate figures for the NFP, which is actually positive for the dollar, so The EUR / USD market price will have to fall to reflect this.

Banks won't sell unless they are the ones who don't take advantage of the opportunity to make money. The only way for them to make money is when someone else loses money and they know when they should place a sell order, the price will drop and all traders who place a buy order when the NFP is issued will be forced to hold the losses. Finally, the bank traders gathered the profits from the "ill" traders above.

By reading this, I am sure you are thinking of Bitcoin's strong pump-dump during the end of 2017-early 2018. In fact, these two cases are not much different.

You can see that in the time since this NFP release the price of EUR / USD has dropped significantly which means that certain bank traders have placed a sell order when the NFP was released.

But the odd thing here is that the actual numbers of this release are absolutely negative for the USD price, meaning that the forecast figures are true, not wrong. So it was true that the rumor was true and the traders actually made the correct decision. So why are prices still falling? Simply because the banks have "manipulated" the numbers, navigating the market as they please.

Summary

I hope with this article I have given you a better understanding of what is known as "buying gossip, selling truth" or "selling rumors, buying truth". Unfortunately it's not really advice because there isn't any one way that can be used to determine whether banks will go into the market and whether to buy or sell when a news event is released.

Only after news has been released do we know what is happening. However, I think from the data we will have a little hint of the direction in which prices are likely to move in the near future.

According to Forexmentoronline
Translated by Blogtienao.com

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