A few years ago I was browsing the various news sites, and caught wind of the military escalation in Ukraine.
Reportedly, about 1,000 Russian troops have now crossed the Ukrainian border.
Unsurprisingly, a number of news reporters jumped on this story and tried to relate it to how financial markets are moving.
Here are some of the headlines I’ve read so far:
Yen firms on Ukraine tensions
Yen Gains on Haven Bid Amid Ukraine Tension
(Bloomberg: Aug 29, 2014 5:08 AM GMT+0800)
Yen Heads for Weekly Gain as Ukraine Tensions Spur Haven Demand
(Bloomberg: Aug 29, 2014 8:05 AM GMT+0800)
The common theme here is the strengthening of safe haven currencies (like the Yen) upon the bad news.
This looks serious!
So I opened up my Yen charts and took a look.
Here’s what I saw:
If I didn’t know better, I’d be more than a little confused.
Looking at these charts, even 9-year old child would be able to tell that the reported “strengthening” of the Yen is likely to be nothing more than a blip of market randomness.
What’s the significance of such a small move?
The answer is nothing. There’s practically no significance to it at all.
But of course, a financial reporter’s job these days is not so much about filtering information than it is to sell subscriptions.
And they do it by making up compelling stories that try to relate real-world events to market prices, even when the relationship between the two are weak at best.
In the Icarus project, this is an issue we discuss at length. Inside, we show proof of how a reputable financial newspaper tried to explain why EUR/USD prices moved up and down, by giving the same reason!
Clearly, these news outlets either have no idea what they’re talking about, or don’t care about the quality of the news they report.
As traders, we would do well to remember this.
Reporters and analysts are paid by the number of articles they produce (and their popularity). Often, they do this by writing reports that seem to make sense, at least in theory.
Unfortunately, this is irrelevant to serious traders.
Unlike the armchair speculators who make a living coming up with entertaining stories (often by “explaining” things that already happened), we traders make money based on facts.
If we are wrong about reality, we lose money. It’s as simple as that.
Our incentive is thus to understand reality as accurately as we can. Trading based on entertaining illusions is bad for the bottom line.
This is why we must never take anything we read or hear seriously without verification.
There are plenty of people out there who will tell (sell) us thrilling stories about the market, but that have no bearing in reality.
Is This Something You’ve Noticed Too?
What do you think? Have you ever experienced something like this before?
Let me know your thoughts in the comments below!