This forex trading strategy relies on what traders believe will happen in an upcoming forex event. It all begins with a trader buying a currency on the strength of a rumor. Following the occurrence of the anticipated event (e.g., the Federal Reserve meeting), as soon as the news is up, the trader sells their positions, often at a considerable profit. Position trading is a long-term strategy compared to news trading or day trading, but it can also yield returns for a trader who believes in ‘buy the rumour, sell the news’. For instance, there were rumours before the OPEC meeting in December 2018 that the group and its affiliated non-members were going to cut their production of oil to reduce the global supply.

Then they start to trade it, which has worked out quite well for us. Big players even help to create it when they buy the rumor and sell on the news. Buying the rumor and selling the news works in a very simple way. Buy and sell-side analysts will typically identify a key catalyst of an asset and start coming up with projections. In the same way, if positive news comes out and a stock or other asset drops on the news, traders will say, “the information was already baked in”. What they are referring to is the fact that the price rise happened before the news, so the price of the asset already reflects the impact of that good news.

What Is a News Trader? ‘Buy the Rumor, Sell the News’ Explained

By becoming familiar with specific markets, news traders can make educated guesses as to whether a security will increase or decrease in price following a news report. Trader buys in these cases because they are expecting a favorable outcome. Assuming the news is consistent with expectations, the forex trading strategy suggests selling when it comes out.

• Forex traders have access to at least eight major currencies at most forex brokers, which means that economic data is always available for them to use as a basis for making informed trades.
• These periods are characterized by a high amount of volatility that creates an opportunity to profit.
• This tends to happen with whole number price milestones like “$20k Bitcoin.” This honestly happens in just about every case you can imagine.
• Investors who use this strategy tend to seek out undervalued markets.
• In anticipation of the announcement, traders might open positions on popular GBP currency pairs like GBP/USD or GBP/EUR.

Tradeable currencies are available around the world. However, the U.S. dollar is on the “other side” of 90% of all currency trades, so U.S. economic releases tend to have the most significant impact on forex trading markets. By selecting the currencies and economic releases you are particularly interested in, you can customize your trading strategy effectively. A forex trader will generally profit from an announcement in the run-up to it since, by the time an announcement is made, the impact it might have on the currency has been factored in. It could be even more detrimental to the overall trend of a currency if the announcement goes against, or significantly exceeds, expectations. Due to this, traders who opened positions on the rumor could incur a severe loss or make even greater profits than they expected.

What is the opposite of “buy the rumor, sell the news”

Predictability is one of the main strengths of this strategy. When the news comes out and fails to match this new value, it can prompt a sell-off. But it couldn’t compare to the expectations that had been built up. Some thought https://forexhero.info/kubernetes-vs-docker-vs-openshift/ Teslas would begin selling at the same cost as conventional cars. Within two days, Tesla stock had fallen back to the $350 level. At the September 22 event, Musk talked about Tesla’s revolutionary new battery tech.

• I understand that the anticipation of a deal can create more price action than the actual deal itself.
• This was buying the rumour, as traders expected that Apple would post good earnings.
• The new look was widely panned, and Gap was forced to scrap the entire campaign and return to their old logo within weeks.
• Tradeable currencies are available around the world.
• Consider the case where a forex trader expects the price of a currency to increase or decrease in response to an upcoming economic report or world event.

A future where Ethereum supports more use cases than ever before could result in it smashing through the previous all-time high. With its current price just shy of $2,000, a serious opportunity might be awaiting investors. Considering that Ethereum nearly reached $5,000 in November 2021 without The Merge, imagine what it could be capable of once the move to proof of stake happens. This adage can actually sound counter-intuitive at first, which is an early sign you might be on to something. I’ve seen many interns and new traders at our firm question it at first (100% of them, actually). But within a few weeks of seeing it in play, they start to quote it themselves each time it occurs.

‘Buy the rumour, sell the news’ trading strategy

Once the company has its earnings call or makes its results public and the stock rises on strong revenue, the traders will sell their shares to turn a profit. This behavior also applies to forex, but instead of cash flows, traders often act on anticipated interest rate changes. When a central bank raises interest rates, it often signals a strong economy.

This strategy can be applied to any asset class, including stocks, bonds, commodities, and currencies. What does it mean when traders and investors talk about ‘buy the rumour, sell the news’? And how can you use this strategy to trade on earnings and interest rate announcements, the forex market, or anywhere there is a risk event? Read on to learn how the buy the rumour and sell the news strategy works, see examples, and learn how to find the rumours/news to trade. I’m not a forex trader, but yes, some forex traders use the ‘buy the rumor, sell the news’ strategy. For instance, rumors about a country’s rising interest rates can be perceived as a sign of a strong economy.

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Another approach is to use pending orders, especially ahead of a major event like earnings. If the news is much better than forecasted, though, traders don’t take profit because better-than-expected news draws in new players and sends the price higher still. Then the early birds are positioned to make even better profits. If the news fails to match expectations, traders and investors alike sell, and the dip may turn into a longer-lasting price drop. Market pricing tends to move in anticipation of something happening – the rumour.