Newsies for Newbies

Inspired by the great post by @This_Guy ; I recognize a lot of those lessons I learned the hard way after I began trading in April this year. 🙃

I thought I would share a few more from a novice's POV in case it helps anyone!

1) Know who you are competing against.

Trading the news does more harm than good on companies with big institutional ownership IMO. It's just logistically impossible to see news before asset managers and hedge funds with direct fiber lines to the exchange and algorithms to trade at the microsecond have already beat you there.

2) Get a basic understanding of any metrics or charts at a *conceptual level* before you rely on them to direct trades; never use any analysis as a black box. There are many incorrect assumptions built in (e.g. prices are not Gaussian distributed, so anything with standard deviation in it has no mathematical justification) so learn  how/when the plots don't give useful information. Use them only as *one tool* out of many to make decisions.

Also take a look at when they were first used some time. Do you really want to be using math from the 1960s/1970s to do your thinking for you? :) Keep "correlation does not equal causation" and "regression to the mean" as mantras 🙃

3) Learn to translate financial bro-ese. "Sequence of return risk" is just a Markov Chain, beta is just "compared to the index", EBITDA is just true profit before they play all their tax loop gains. Don't let the fact the industry uses obfuscating convince you it's some super complicated concept.

4) Only act on news you *understand the long term implications of* and watch out for intentionally misleading language. I only trade news in bio-tech/pharma simply because that's what my job is in. But only when I feel confident I know what that news wil mean and how much time it will be before generating revenue. For example, I don't trade news on cancer drugs. I don't know enough about how likely a new competing drug is to displace others and how much market share it will have.

Sticking to your field also helps avoid the traps of dodgy PR statements. I sadly have seen it at least 6 times this year where a bio-tech company announces a patent on a new drug delivery technique or other form of technology but phrase it near identically as ones where they announce a patent for a drug they will now market.

The drug hitting market will be big revenue; the patent on drug delivery technology generates no revenue. If it makes money, it will be because whatever new drug they are that used that tech will get approved for sale. If not, it's useless. No other company is going to use that tech to design a drug and pay a licensing fee when they can just make their own system. It won't generate revenue for the company with the patent and no other company will want to buy it off them.

I hope that made sense! I was trained as an ecologist turned code monkey, so I'm not always great at accounting for that different frame of reference!