The Power of Emotional Markets

This text discusses market efficiency, expected value, trading on news/events, and one of the simplest (but not easiest) benefits you can gain.

The efficient market hypothesis claims that asset prices always reflect all available information. However, this is only partially true. In reality, at any given time, asset prices reflect the perception of information received by current market participants.

The difference lies in the interpretation and dissemination of the information.

This introduces two variables that every news trader uses: headline interpretation and headline speed of spread.

As a result, you should treat the market as a slow, partially efficient, emotional object.

This has two direct consequences (and additional benefits): 😏if it is slow, you can enter it earlier than others, and 😬if it is emotional, you can extinguish the parabolic euphoria.

One of the easiest skills you can learn and improve is to

Interpreting headlines correctly as quickly as possible.

Understanding how people will interpret them.

Guessing how quickly news will spread among the masses.

Despite its simplicity, this is not easy and requires practice by observing headlines and readers’ reactions.