Should Traders Follow the Financial Media?

Think about what role, if any, the financial media plays in your trading? Do you regularly read financial commentary, or watch those controversial "talking heads" on TV? And if so, do you allow these opinions and viewpoints to influence how you trade?

Now it's widely known and accepted that traders rely each day on news and information about the markets, and this is not another attempt to vilify the financial media…especially since that gets done all the time!

We do, however, want to examine if the financial media is a reliable source for trade-worthy information. So if you pay attention to financial media, let's consider—or maybe re-consider—if it should really have a rightful place in your trading.

The Financial Media Always Has an Opinion

So the market goes up on any given day, and suddenly you see headlines like, "Why This Raging Bull Market Will Keep on Running." Then it goes down and you hear, "Is This the Start of the Next Great Market Meltdown?" And this doesn't happen over many months, either. Both headlines can—and sometimes do—come out the same week, which is why traders are often confused and non-committal, mostly wondering "Well, which is it?" That likely sounds a bit familiar, as it's happening right now!

Think about the role of the financial media, though: It's not to be right about the markets; it's to be entertaining, and they're really good at that! By stirring up hype and/or controversy amidst all the lights and sounds that make it so famous, the financial media attracts the eyeballs that their sponsors and advertisers count on. That's the media's job, afterall!

See related: The Real Reason Your Broker Offers Forex Education

But Traders Should Always Decide for Themselves

Your job as a trader is different, though, and that's why trading based on what you hear on TV or elsewhere across financial media can be problematic. Here's what I mean:

Beware the Next Big Bubble or Crash!

Fear appeals are more effective than ever, especially after so many have been burned by the financial crisis. It gets people's attention—which is what they want—but how often does any such crash actually materialize? (For example, it's now been more than six years since the last meaningful correction in US stocks, although the financial media has consistently warned of "The Next Big Market Crash" during this time.)

"Are These Risk Factors New, and What Impact, if any, Will They Have?"

Typically, these new calamities have to do with geopolitics, interest rates, or government and central bank intervention, some of which, if not all, aren't new and may be priced into the markets already. If not, though, consider adjusting your risk or positioning, but only if you deem appropriate upon your own independent review.

What They Say: The New, "Can't Miss" Stock or Trade Idea

It's easy for financial media to show you a great-looking chart of some instrument that's in a strong, steady uptrend, and the promise of potential profits means that people will be anxious to see it, too. But the fact of the matter is that by the time these set-ups hit mainstream financial media, the meat of the move is already over, and getting in at that point would only make you late to the game…just like most of the 92% of traders who ultimately fail commonly are.

"Does This Make Sense for Me and My Strategy?"

There could be solid reasoning behind that trade idea, and even if it's too late for that particular trade, you can study the stock or instrument, the set-up, or even look for other, qualifying trades related to that one. Maybe another stock in that sector is a good trade candidate, or a related currency pair? In short, you can look to draw inspiration from the financial media, but be very careful about taking any real, concrete trade ideas from it. Especially since you can come up with those all by yourself!

See also: New Trade Ideas You Can Test Out This Month

Conclusion

In the markets, and in life outside of them, it's important to remember that those who speak the loudest aren't necessarily right. And while it doesn't mean traders should ignore the financial media, it's critically important to think for yourself, and trade based on your own analysis of what is actually happening in the markets, not what you think is happening based on outside opinions and the financial media. Also consider that the majority is often wrong about the markets, and the so-called "experts" on TV and elsewhere are just as likely as any solitary retail trader to be part of that majority. So soak in outside information if you so choose, but remember that every trade decision must ultimately be yours, and based only on facts and the rules set forth by your own unique trading strategy.