Trading on Information and the Mute Button

Posted by Jeff Carter
on June 11th, 2012

How do you receive and process your information to trade? To invest? It’s worthwhile to think about. In the old days on the floor there was the newspaper, wire services, your own education and your personal network. The better your personal network, the more potential money you could make.

In the new electronic era, what can you do to maximize the amount of information that you receive, and get rid of the noise?

First, recognize you cannot beat the machine market in this day in age. In the old days, we could see a one line sentence on a Reuters screen, act on it, and beat the market. No chance of that today so when news breaks it’s better not to trade on it and wait than actually get your hands dirty. The only way to beat the market is get information ahead of the market. Most of the time, that’s illegal.

Second, be aware that most of the time, trading is boring. There is price movement, but not true action. It’s like going to a bar on a Friday night. Sometimes you will walk out with a girl, but if you are too aggressive you will simply get a hangover. Commissions and losses are your hangover.

Many people rely on television business news to get information. It can be a good medium if the person relaying the news knows how to interpret information in bite sized pieces for the market. Unfortunately we see a lot of spin. Did you catch some economists and reporters after the recent unemployment report?

Most of traders I know have turned the sound off on televisions after 8AM. The pictures and anchors are pretty to look at and if there is breaking news they can turn the sound up. But the information relayed is like eating a piece of candy. It gives the trading room something to talk about, but no actionable information.

The blogs are great. That’s one of the greatest features of the new electronic age. You can get really good information depending on what you are interested in. But, they take time. If you are going to be good at something, it will take time. With regard to investing, you cannot be good at every market. You will have to pick a sector, a commodity group, and concentrate your efforts there. Be mindful of the other markets and the politics involved, because they will eventually influence your chosen market. Specialized bloggers are a great way to get a lot of good information.

The other thing I have found is traditional media is five steps behind. When I see something scroll across the Stocktwits feed, I’ll see it five minutes later on television. Last year when the earthquake hit Washington DC, the people of New York found out about it on Twitter before they felt it under their feet. If you are trading and not on Stocktwits, you are handicapping yourself.

Even with Stocktwits, you have to specialize. Find the micro”tweeters” that trade the same thing as you. Then find some ancillary broader tweeters that pepper the stream with macro information. Generally, you can ignore the macro stuff until later. Start to share information with the micro community and see if they share back. There is power in numbers because no one on the stream is ever going to be faster than the machines.

When you create your Stocktwits profile, be specific as to what you do. The more specific you are in creating that profile, the better your interactions will be.

Last, but the most important, is developing your personal network in the area that you want to trade in. Start networking and finding people you trust that trade the same stuff. Develop a broad network that touches on all elements of the supply chain. Even bond and currency markets have a supply chain. For example, if you concentrate on mining stocks, find people in the mining business to talk to. Talk to their customers. Read what analysts say. Talk to other people trading mining stocks. Pore over statistical data from mining ETF’s and daily data from the stock action to try and detect a theme. Look at options action. Then it’s up to you to piece together the disparate information to develop a trading thesis that is actionable and can make you some money.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.