Table of contents

About The Author 1

Introduction 2

How the News Finds Big Trades 4

True or False? The News is Already Priced Into the Markets 5

Noise 7
Madness of Crowds 10
Timing of News vs Timing of Impact on the Market 12
 ABOUT THE AUTHOR

Ian Cooper has been a trading professional for 20 years and has publicly predicted
the Great Recession, Lehman Brothers bankruptcy, UK economic collapse, and the
COVID Crash of 2020.

He writes a daily alert newsletter, Trade Alerts 365, that has helped its readers
achieve triple digit gains in very quick timeframes.

He combines technical and fundamental analysis with the timing of various

announcements and approvals to produce his trade ideas.

1
 Introduction

As a trader, we are always looking for the big moves. We want to get in at the
beginning of the move and watch the numbers in our account go up, and up, …
and up!

“Buy low, sell high” is an exhausted saying about trading that makes it sound
ridiculously easy.

What if there was a way to spot those big moves as they are setting up? Imagine
if you could know which of the thousands of stocks, ETFs or options to pay
attention to.

If you could see through all of them and zero right in on the ones that were about
to become explosively profitable trades?

One of those rare times when the market made absolutely historic moves
happened in late February of 2020. It was February 24th, to be exact. The market
had just come off an all-time high and had pulled back a bit. Not exceptional,
though as it had been doing that in a upward moving bull trend for a little over a
year that added a whopping 35% to the Dow Jones Industrial Average.

Just looking at the market wouldn’t have even come close to letting you see what
was about to happen.

The news was filled with headlines about the COVID-19 virus which had already
become global and was about to change the future of the planet.

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On that day I could see it coming. Here is what I wrote to my subscribers in my
newsletter that day:

That is an actual screen shot of what I wrote. It was the tipping point and
was the start of a unprecedented market crash and the explosion of a global
pandemic that impacted everyone.

UVXY is an ETF or Exchange Traded Fund that is based on the VIX, a volatility
indicator created by the CBOE to measure how much the market is expected to
move in the near future. It was trading at about $15 per share that day.

Within about 3 weeks, UVXY was trading at over $125.

Now that I have your attention, I am going to walk you through the method I
use to see these types of absolutely massive—and profitable—moves before they
happen.

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How the news finds big trades

To spot this big trade I use just a few simple tools and it starts with the news.

The markets and the news have had a complicated relationship. There are
analysts and traders who fall on both sides of the argument about how that
relationship works. Many will say the market factors in the news before it is
even public. Others hold the belief that news drives the market and can even be
an indicator of what to expect.

My goal is to help you:

• Understand the part the news plays in the markets,

• Be able to determine when the market is moved by the news
• Recognize when other more powerful forces are driving prices up or down,
• Put all of this together to spot actionable, hugely profitable trades.

As you read through this, take notes, write in the margins, look up the examples.
One key thing that has helped me achieve trading success has been to be
immersed and use the tools and strategies as I learn them.

There could be big trades setting up right now, so let’s jump in.

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 True or False?
News is Already Priced Into the Markets
For years we have been told not to trade the news. “By the time you read it in the
news, it has already been priced into the market.” This saying has been around
forever, which is one of the main reasons it doesn’t apply anymore.

The earliest credit for this statement is closely tied to a concept called “Efficient
Market Theory” or “Efficient Market Hypothesis”. That concept was part of a
doctoral thesis by a French mathematician in 1900. That was long before the age
of instant communication via the internet or even the 24-hour news channels.

Even as recently as the early 1990s, floor traders had access to extremely
expensive news wires that may have given them slightly faster access to news
and world events.

As trading rapidly evolved in the mid-1990s and the day trading craze took hold,
the average trader started to gain access to tools that had previously been only
for the elite. The internet launched a competitive environment that had web
companies competing for traffic and online brokers pour money into features
that would help them acquire clients. All of this lead to free access to stock data,
charts, and news.

The day traders engrossed in the Dot Com mania, were veracious and began
using these tools, which used to cost thousands a month, to build more and more
elaborate trading systems and processes.

All of this started to coincide to make Efficient Market Theory (EMT) invalid. At
first glance, it may seem that EMT wouldn’t be valid because everyone had the
information at about the same time. In a bit of a paradox, it actually rendered it
invalid because so much information was available from so many sources. This
created a phenomenon called the “friction of news flow”.

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Today, there is so much news from so many sources, people have become a bit
desensitized. A great example of this is people saying they need to “unplug for a
while” or “go off the grid”. While those sayings may be a bit of an exaggeration,
those expressions show how people get overwhelmed and either stop listening to
the news or do so selectively.

For example, if news is intended to reach 100 people, it may be published, over-
looked, or missed by 70 people with only 30 of them getting the news. As the 70
who missed it start to catch up, their actions begin to factor into the market.

Now consider when people will actually access the news. Big events that happen
throughout the day may not reach many until they are on their commute home,
or until they scroll through all of their social media and make it to the news. This
could easily be after the market is closed and their trades won’t happen until the
next day.

Add to that the huge volume of information that is available and the possibility
that all of the information may not be accurate. When EMT was conceived, there
were a handful of news sources and many people involved in getting information
into print and out to the masses.

Now, all it takes is one person with a computer and a click of a button and
whatever they believe is going viral. That volume of news and data is simply
overwhelming.

Keep in mind, we aren’t just talking about headlines, but all news. As a trader,
knowing where to look for the news and how to verify its impact on the markets
is critical.

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 Noise
If you have ever worked in a factory, near machinery or in any exceptionally
loud environment you are aware of the human ability to adapt to the din of
constant sounds and focus on your task at hand. This same trait is very evident
in soldiers and first responders who have to maintain a very high level of focus
in extremely chaotic environments.

At a different level, seasoned traders often have a similar ability, though not
usually with lives on the line.

On a daily basis trading is made of evaluating thousands and thousands

of pieces of data and finding those elements that will help make the most
profitable decisions. Charts, patterns, advice, news—all barraging you
throughout the day. Being able to get used to that buzz and start to hear or see
only the pieces of information that matter is important.

Tuning out noise is a basic human skill. Think of a mother that can hear a
baby’s cry above all other sounds. How we get conditioned to the ring tones and
alerts on our phone. Which are good, and which are bad. As a trader, it is simply
about learning what data will indicate a big trade is setting up.

The huge number of places we can get information contributes greatly to

the noise. More and more often we can read very disparate views of the same
news story. The bias and spin that is slathered over a news story can make it a
challenge to be objective. By doing the homework to get the context of the story
you can not only see the fact through the spin, but you can start to see how the
fact can impact the markets.

In 2019, a report was published that looked at the relationship between news
and market movement found that when multiple sources agree on a story, the
impact on the market is more pronounced.

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The ‘clarity’ of stock market move attribution – measured by the share of articles
within and across papers that agree on the cause of a jump, the share of “unknown”
attributions, and the confidence of the journalists assertion over causality - has in-
creased dramatically. From 1900 to 1945 news coverage of financial markets shows a
steep rise in clarity, probably linked to the improvements in financial transparency,
communications and news. Clarity also turns out to matter for future volatility –
perhaps unsurprisingly, jumps which have unclear attribution are followed by sig-
nificantly more volatility in future days. (Scott R. Baker, Kellogg School of Management; Nicholas
Bloom, Stanford University; Steve Davis, Chicago Booth School of Business and NBER; and Marco Sammon, Kellogg
School of Management , September, 2019)

It is interesting that the report also noted that when sources do not clearly align
on a story, there is a connection to higher volatility in the markets.

A prominent topic in the headlines is US trade with other countries. These

relationships have a huge impact on the markets and when traders feel a key
trade partnership is going to change, it will send prices racing up or down. These
foreign trade headlines, however, can be interpreted with completely opposing
views by different news sources.

For example, the trade relationship the US has with China has tossed the
market around like a rag doll and trying to determine which piece of news is going
to move prices can be challenging. Traditionally it has been believed that China
manipulates their currency to their favor and has little respect for intellectual
property rights. On the other hand, the US economy depends greatly on the
flow of goods to and from China to support businesses and jobs. It is realistic to
have a piece of news on trade talks generate a headline on from one source that
reads “US Gets Tough On China With New Trade Rules” and another source to
create a headline for the same story that reads “US Jobs in Jeopardy As Trade
Strained with China.” Which one is right?

Untying the spin in the news is important and understanding how to tune into
the facts. What is important in the example above is that there are discussions
going on between the two countries and that there will be posturing by both. In
the end, no deals are done until they are done and you don’t want to get caught
in the whipsaw as news platforms try to keep up with the talks.

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By reading the same story from multiple places, you can easily start to see what
the core facts are in the story. Most of the time, these facts will be the same no
matter what the source, but they will be surrounded with opinion and
someone else’s interpretation. If all sources say that a trade discussion will include
a key change to a current agreement, then expect that to have an impact on the
markets. But if one source claims there will be a change, and other sources either
don’t mention it or reference it as suspect, tone it out.

Another big challenge is determining how the market will react to news. A
classic example of this is the Bureau of Labor Statistics Employment Situation
Summary, better known as the “jobs report.”

This report is released on the first Friday of every month and estimates
the number of people employed and unemployed in the economy. The
market can move in one direction on a report that indicates that unemployment
is down one month and then move in the exact opposite direction when the
unemployment is down in a different month. It seems like voodoo, but it is all
about context.

For instance, in the period following the COVID Crash in 2020, where there
were months with unemployment numbers that hadn’t been seen in a single
month since the Great Depression, that may have moved the market up. What
made the difference was the context around that report.

If the latest number was less than the previous month, albeit it staggeringly
high, it was still optimistic news and the market would interpret it as positive.
Or, if a stimulus had been announced the week before that added benefits to
those filing for unemployment, even an increase in unemployment would be
muted in the markets since the perception was the benefits would reach the
unemployed.

Knowing what is going on in the world around the news is critical.

The key to training your ear to hear that data above all else is learning to
understand technical indicators. We will dive into the most important indica-
tors that predict market movement in just a bit.

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 Madness of Crowds
With a wave of data and information being thrown at everyone constantly
throughout the day, news is getting absorbed by people at different times and
may or may not be accurate. How can we tell what pieces of news the masses
will respond to?

Many great traders will tell you to exploit the herd mentality. This is a belief
that as everyone runs in one direction, often the money is the other way.

The Dot Com Bubble is a great example. The market was shooting up and,
at times, it seemed like every new internet related company was going to see
their stock price go through the roof. As the rally continued and it started to
become clear, the safest—and most profitable—way to trade that bubble was to
go against it. Not unlike the alerts I saw that helped me warn my readers about
the reversal due to COVID-19, the signs were on the wall as the market began to
shift in the early 2000s.

Crowd psychology shows that irrational trends are perpetuated by group

thinking. As we work to sort through the news and waves of information
thrown at us each day, one challenge is to weed out what is simply driven by
fear of missing out on a rally or what is actionable information that can be
used. This is a strong supporting argument for coupling reliable news data with
technical analysis. Common indicators based on the price movement of a stock or
asset can show when a trend is irrationally overbought or oversold. These indica-
tors, like MACD or Bollinger Bands are on every charting software and can be
combined with the news to show this illogical behavior and allow you to trade
it. As you read on, we will walk through the most important indicators and how
to combine them for the highest level of accuracy in spotting winning trades.

As the crowd begins to sift through the news, we also start to see a type of
validation. This has become even more true with social media. People seek out
those who agree with them. How many times have you seen someone threaten
to “purge” their friend lists when they get into an online spat?

This only narrows their view of what is going on in the world and exacerbates
the herd mentality.

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Another modern advent that has increased herd mentality are the algorithms
used by news sites and other portals to customize your news feed. This
process takes data from your browsing habits and uses it to determine what
information it should show you. You start to see a narrower and narrower
perspective of what is going on in the world and can begin to act on incomplete
data. With many getting their news only online, this is affecting the masses.

The result is that ideas gain momentum quickly and spread through the dry
tinder of people seeking to validate their beliefs. These conditions amplify
two of the main driving forces of the markets, fear and greed. Both of these
conditions are fuel for irrational decisions and no place is that more evident
than in the markets.

The more someone hears of a trading opportunity from their sources, friends
on social media, filtered news sites, the more they feel they have to get into that
trade. The drive becomes so compelling, they ignore their trading plans and
place orders at prices they really can’t justify. This drives up the price of that
stock to levels the data about that company can’t support. These moves pick up
speed and shoot up to highly overbought positions.

When that price can’t be supported, the people who had the stock before the
price shot up start to lock in their gains and sell. Sometimes those people are
insiders who have built up a mass of shares and have been waiting for the
right time to sell. No matter who it is, they will start to sell and they will take
whatever they can get. All of the sudden that stock that starts to drop and that
greed that got those latecomers in, willing to buy that stock at any price they
could get it, turns to fear and the sell off begins.

This Snap Back pattern plays out regularly, and it is one of my favorite and most
lucrative strategies. It doesn’t happen with every stock and it doesn’t playout
every day. But with the tools we are outlining here and the information you are
about to read, you will be able to spot these situations as they set up and you
can be there to grab the money emotions are leaving on the floor.

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 Timing of News vs
Timing of Impact on the Market
Efficient Market Theory argues that news is already factored into prices. By the
time you hear about a news event, EMT claims, all of the effect that information
will have on the market is already priced into the stock.

The challenge with that is that it only measures an initial reaction. In reality, it is
more like the ripple effect where the immediate response to the price is just the
beginning. The ripples that follow are moves that can be recognized and traded
for big money. COVID 19 is a great example of this.

Technically, the news of COVID hit in December of 2019 with the WHO releasing
an alert. It can be argued that the scope of the potential impact of the virus was
not yet known. On January 21st the first case was reported in Washington State in
the US. By January 31st, there were already 213 deaths in China and nearly 10,000
cases globally with 19 countries impacted.

Yet the markets continued to rally and pushed to all-time highs. For nearly a
month after the virus hit the US markets stayed near their highs. It is clear that
the news had already hit but it was the context and evolution of the story that
triggered the crash. The gravity of the news was what sent prices dropping.

(chart from Barchart.com)

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But the news did provide a spot light on key stocks that skyrocketed during the
crisis. In fact, as the market tanked at an unprecedented pace, certain COVID
related stocks saw huge gains. Alpha Pro Tech (APT), makers of masks and PPE
shot from $5 to nearly $40 in just weeks.

Another stock that launched as the market crashed was pharmaceutical company,
Inovio (INO).

Clearly, the news impacts the markets in waves and is not completely factored in
instantly. Both of these stocks were companies that had the potential to provide
value in the midst of the crisis. As the news stories about COVID unfolded, it
made it clear that there would be a need for PPE and a focus(ch
on arttreatments
from Barchart.cand
om)
vaccines.

Of course, these weren’t the only companies producing these types of products,
but by honing in the search to just companies in these areas and then using
technical analysis to pinpoint which of those handful were really positioned to
take off, there was significant money to be made.

(chart from Barchart.com)

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