This post was originally written for r/RealDayTrading Feb 16, 2022
You know the lazy trader! He’s the guy who comes to this sub and who has to constantly be reminded to read the WIKI. Today the lazy trader was punished and he learned an old trick that institutions love to play when the market is dead. Let me set the table.
The lazy trader shows up with his cup of coffee when the opening bell rings and he sits down in front of the computer to see what’s moving. The day unfolds and the action is pretty dull. Because he is lazy he doesn’t realize that the FOMC minutes are going to be released at 2:00 PM ET and that everyone is just waiting for the news. All of a sudden the lazy trader sees a headline “Putin Adds Troops On the Ukrainian Border.” The S&P 500 drops on the news and it falls to a new low of the day. This is just the type of news he has been waiting for so he shorts the S&P 500. A few minutes later he loses 10 handles and he wonders what the #$%^ just happened.
If the lazy trader had done his homework he would have known that the Russian news was released well before the open.
Here’s the game institutions love to play. Trading firms pay a lot of money to have colocation servers for news feeds and optical readers. I have no doubt that trading firms and the media work in concert with each other. When trading is dull ahead of the Fed minutes, they recycle some old news. This drop shakes lazy traders out of good long positions and some of them get short. In an instant, institutions pivot and they make enough money on that move to justify paying big bucks for the news feed. There is nothing illegal about this practice. The media company is just reporting the news – right?
Trading is one of the toughest professions. If you take this lightly, you will lose. Institutions will do everything they can to take your money from you and you need to be on top of your game. We knew that Putin was increasing his troop count before the open. When we saw this headline we knew it was recycled news and we did not flinch.
Start your trading day at least an hour before the opening bell and know the headlines. Understand this game and you won’t fall victim to it like the lazy trader.