Sorry, no charts on this piece. Instead, I am just going to write something about our reaction to market moving events.
Yes, it makes us feel empowered to be able to come up with an explanation to justify what the market has done. But in the financial market, cause and effect happen so quickly, by the time you have learned what you (might) believe is the cause for the market movement, you have completely missed the move. Surely, there are people in the known. There is always someone know something before anyone else, and we see that being exposed in the options market sometime (emphasis sometime). But do you have the resources to determine in a very short period of time the true cause and capitalize on the effect?
I know I do not have the resources to quickly determine the cause(s) and neither it is important for me to know at the time the financial market is reacting to it. The only resources I have are my eyes watching the price movement and my fingers to enter the orders to manage my trades, and more importantly, my trading plan.
At the end of the day, the question we should be asking is not “Did I know what caused the market to do what it has done?” Instead, the question should always be “Did I do what I have planned to do based on what the market was doing?” By the time the cause for the event is revealed, the effect has already occurred. What is important is “Trade the price, not the news.” Whatever the news or cause may be, the ultimate arbitrator is PRICE.
