Anticipating how the market will react to the stock picks of well known “experts” can be lucrative. It can also be like a hall of mirrors in an amusement park where you see yourself reflected many times. In a lightning fast electronic world it is possible to outguess yourself trying to outguess the other guys. A good trading plan works on the KISS (keep it simple silly) method.

Trading Advice

Years ago when investment periodicals came out only in print one could read the stock picks and anticipate how investors would react to the buy or sell recommendations. Often buy and hold investors would take the advice of the experts several days after the advice hit the newsstands and after the price of the stock had already made its move. The smart trader would make money on the trading advice by buying or selling and then entering the opposite order with the broker for an anticipated profit within days. Today you can get your investment advice online or on the television and the buy/sell is done at a trade station as the stock guru gives his advice on TV or the periodical flashes across your computer screen.

None of this trading the trading advice is especially new. However, folks have studied this trading the advice phenomenon. The response to trading advice is sufficiently predictable that many traders follow the experts’ advice and make their profits being contrarians. In fact the result of many traders playing the stock pickers instead of the stock picks often results in an over correction opposite the first effect. Thus there is a trading advice rebound that is tradable too.

Both of the above are pretty predictable and tradable. However, like the hall of mirrors, the potential infinite regression can get very rapid and very confused. A good trading plan will take advantage of the predictable response to trading advice. A better trading plan will confirm trades with ones trading program looking at least at market direction and trading volume. The closer to when the advice is given the better your likely results. Set a time span from advice to trade and stick to it. Trade the old advice and you are the one being “traded.”

Remember that when you do not trade you do not lose and you do not pay commissions. If the prediction is not clear or you think the advice is already discredited on some way do not trade the trading advice, just trade the market.

Trading the News

The same general advice applies to trading the news. The fresher the news the better your chances are of trading and winning. Remember that “fresh” has a different meaning in the electronic world. The other matter that applies to trading the news as well as to trading the advice is that the more homework you have done on a particular stock or market sector or exchange the better you chances of winning by playing the news. Interpretation is all important. Like trading the advice don’t trade if you do not understand and don’t trade against you plan and trading program unless you believe that you are truly the very first to hear the news.

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