How to trade a strong news event

Today I’d like to address whether or not you can catch some market-moving news event in time to jump on board and profit.

A couple of days ago (as discussed HERE) the SEC lost it’s court case against Ripple XRP.

This removed the UNCERTAINTY around what would happen, the coin was instantly worth more than it was.

But here’s the thing.

Markets CAN’T move instantaneously.

There is always an initial underreaction, and then later on an overreaction.

This is what a trend is. Initial underreaction, then overreaction.

In technical terms what happens is that the available market maker liquidity gets overwhelmed and the order flows become autocorrelated (you don’t need to know bullshit like this)

What you want to know: Is it even possible to catch this and ride the bucking bronco without getting tossed off?

Maybe, if you are really good. I don’t do stuff like this anymore, I make enough doing my regular FinRev trading that it’s all a bit like hard work for me.

But here’s how, anyway.

If these things are going to play out super quickly, it’s probably only possible for the super-pro quant guys to make money.

The best spot for little guys like us is slow resolving inefficiencies over a few days to a week.

So this one isn’t really in the sweet spot, and this neatly illustrates a key problem with this kind of trading.

You can only eat what you’re fed.

If the market doesn’t play ball you can’t make a trade with edge.

Anyway, my preferred timeframe for evaluating this kind of trade is the 1 hour chart.

If I have to go any smaller than that I’m probably swimming in a shark filled pond.

First step is to evaluate the shape of the first big candle.

If that candle has no upper wick, nobody is selling out, and it’s probably safe to mash the buy button.

If the upper wick is half the candle size or more (just eye-fuck it) this might be a pump and dump so steer clear.

If the candle has some wick, then we have two scenarios.

1. Dip buyers are gonna step in and pamp it

2. The previous buyers are going to lose patience, bail, and the sellers take over

You need more information. Wait one more hour and see if you can tell whether the buyers or sellers are winning.

Here it’s safe-ish to buy, we see early evidence that the price isn’t cratering and buyers are stepping in.

Ok half the job is done at this point.

You still have to bank that profit. And once again we can look for evidence that other people are selling out instead of jumping in.

As long as the candles are still closing at or near the top of the bar the buyers are still in control so you probably want to hold.

Key Point: Charts are a weather vane NOT a crystal ball.

You can’t tell what the future holds, but you can get a reasonable read on what is going down right now.

Here we only had a high probability trade for 2 hours.

Which kinda sucked, but at least it made money.

You can only eat what you’re fed, right?

So you needed

• The clear thinking to be sure that XRP was doubling because uncertainty was being removed not because of some market manipulation pump and dump. Nobody in the real world is good enough to do this under time pressure, it needs to be something you’ve scoped out in advance.

• The ice in your veins necessary to not get convinced you were on the kickoff of a generational move and that you should HODL on (never get high on your own supply of bullshit)

• The technical skills to know when the move was fizzling out

• Some kind of alert set up to let you know it’s actually happening (there are lots of ways to do this, the easiest is with tradingview)

Obviously, this is super expert level stuff.

If someone asked you to borrow money to start a business and their business plan was to notice weird special situations like this and wait like a sniper to catch them for a couple of hours and hopefully jump in and out at the right time… what would you say?

That seems… like a lot of luck, extremely difficult, and a crappy basis for running a real business.

This is the truth.

You can catch little pumps every now and again.

I’ll be sharing with you some easier ways to do similar things over the next few days (that I actually managed to profit from so it’s not all just horseshit)...

But that’s no way to run a business.

And trading SHOULD be a business.

If you treat this like a fun game, you might have fun, but you probably won’t make money.

A better way is to have the bulk of your money coming from more boring but lower degree of difficulty things.

One of the things I really like about trend is that you could literally trade it with a potato.

Here’s the super-secret rules for a perfectly adequate trend trading strategy that absolutely makes money.

1. Monday morning: Take a list of the top 30 coins

2. Go long every coin which is at a higher price than it was 3 months ago

3. Go short every coin which is at a lower price than it was 3 months ago

No shit, this works really well.

When you get a strong trend, you CAN trade it with a potato.

Stuff that starts going up, probably keeps going up, right?

I’m actually holding a seminar this Wednesday July 19th at 7pm EST (48hrs time) where I’ll show you how to do the “advanced” version of this.

Register here, its going to be excellent

Scott