How do you trade based on news? Is it possible to analyze and predict which way the market would go?
Since we are talking about trading based on news, I thought I could share some of my views. The best time to trade on news is during the results season, as it provides sufficient volatility and tremendous opportunities to make money intraday.
For eg: Today, Arvind Mills results were due to be announced and the stock was trading at Rs. 416 around 12:50 p.m. the results were announced as follows:
Immediately the stock reacted and went from Rs. 416 to as high as Rs. 442, before closing at Rs. 436. So, an alert trader could have made Rs. 20 or atleast Rs. 10 (by close of trade) within a span of 2.5 hours.
Incase you are unable to react quickly then you can look for next day opportunities also. For eg: HEG and Firstsource declared excellent and decent Q4 results respectively and there were a lot of positives, which I have covered in my answers at:
May 7th results declared and answer written on same day: Gopal Kavalireddi's answer to What is Gopal Kavalireddi's view on Firstsource Solutions stock? Is it a good bet from a long term perspective?
May 8th results declared and answer written today morning May 09: Gopal Kavalireddi's answer to What is Gopal Kavalireddi's view on HEG annual results?
Also the management of HEG did an interview on CNBC TV18 and the stock rose sharply at the excellent business prospects highlighted for FY19, while Firstsource solutions had cleared a debt of close to $125 mn and announced dividend for the first time.
How did the stocks react?
HEG gave 10.34% returns while Firstsource gave close to 14.37%. Not bad for intraday or 1 day holding right?
So, if you can react to the results news quickly then you can make intraday money. If not, you can always go through the results and take a call next day also.
What if the results are bad? Then it is a good time to short, right?
On 2nd May, Indigo gave below average results and also, there were issues with Aditya Ghosh’s resignation, poor management commentary, rising crude prices etc. So, Indigo was a definite shorting opportunity.
Same is the case with Tata Coffee, very poor results and the stock lost almost Rs. 8 in one day.
In this manner, we can trade during the results season by having a list of all the companies that are going to declare results on a particular day, and keep looking for news on TV, Twitter (CNBC TV18 for result polls) then trade accordingly.
The results season is mostly over, another 15 days and the market will start looking like a ‘dry state for a consumer’, till easy pickings can come back again by Q1 results in July.
Image and financial data credits: CNBC TV18 tweets on results of various companies.
Footnotes
Answer by Gopal Kavalireddi on Quora
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