Do Not Try To “Trade The News” Unless You Know Exactly What You Are Doing

I wrote a post recently about $SYMS ($SYMSQ) titled “A Case Study In Why You Shouldn’t Trade Pre-market (unless you know exactly what you are doing).”    My point was that you can’t “beat” news into the market – if the stock is going lower, you’re almost certainly not going to sell it before it falls -  the price you sell it at will incorporate the news already.  But that doesn’t just apply pre-market, it applies all the time – and today’s price action in $RMBS is another perfect case study for why you shouldn’t try to trade the news (unless, of course, you know exactly what you are doing).

RMBS announced the unfavorable outcome of an antitrust lawsuit.  The stock was halted, and reopened at $4 on more than 1.2MM shares:

$4 was a bad sale...

Here’s the volume table from when after the stock reopened:

In the table above you can see the re-opening print: 1.241MM at $4, and you can also see the VWAP of 6.9572 on 15.192MM shares.  That means that after the stock reopened, there were a total of 15.192MM shares traded at an average price of 6.9572.  Those poor traders who tried to “sell the news” ended up getting absolutely plugged at the low:  $4.   Don’t create someone else’s alpha:  don’t try to trade fast markets unless you know exactly what you’re doing.

-KD

disclosure:  I am long $SYMSQ.  I have no positions in $RMBS

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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.

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