Looking at tonight's headlines - "Obama Fires Wagner" - strikes me as a good time to talk about cause and effect.
The useful part of this "news story" is not any specific scenario, but to ask the bigger question, "what is the cause and what is the effect?" For if we understand the nature of cause and effect, we are more able to predict both, for profit.
Let's assume the market initially declines tomorrow.
I submit that if you asked 100 people, "what is the cause and what is the effect?" almost 100 would say, Obama's actions caused the market to realize that government interventionism is not good for future business; the effect was the market decline.
I say, that is wrong. Reality is the opposite:
The tanking market created Obama's interventionism, and the pre-programmed thresholds of "had enough" caused Obama to act at the same time as everyone else. A much broader collective "sell off" is the cause; Obama's actions, and the corresponding news report, is the effect.
Once you view the news for what it is, the effect of collective pre-programmed human emotional thresholds firing, and not the cause of market action, the easier it will be to identify and profit from cause and effect.
Too many traders lose because they read the news with a backwards perspective. Instead of trying to anticipate what the news might cause, one should ask, what will cause the news?
You are a proficient trader when you know a big story is about to happen, one that will move the market in X direction, but you have no idea what it will be. Then, to everyone's surprise, it happens.
If an asteroid hits the earth that news is causal, but all man-made news is effect.
Once the news is viewed for what it is, pure effect, it is easy to ignore it and move on to the causal trend in play. If you view the news as causal, as most do, you will almost always lose.