Forex Strategy Video: USDJPY, EURUSD, GBPUSD - When do We 'Buy the Rumor'
• Due to individuals' tolerance for risk and availability of data, 'buy the rumor' can be difficult
• There is a cognitive bias in which traders believe a fundamental run has begun when they learned of it
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There is a saying 'buy the rumor, sell the news'. Yet, when is the rumor mainstream and therefore fully priced in? This is a timeless question for fundamental traders and investors who attempt to take advantage of asymmetrical information and probabilities. In today's Strategy Video, we discuss a cognitive and trading bias (related to the observation selection bias) whereby traders can find themselves late to a fundamental theme and ultimately late to the trade. This is a timeless and universal theme as we find yen traders assess the probability of a BoJ QE2, an ECB stimulus replacement program, a distant BoE hike and the Fed's views on the heavily debated Taper. This bias represents a critical and constant influence on markets and therefore is vital for a fundamental trader to familiarize themselves with.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.