Financial news is very important and very powerful when it is used properly. Unfortunately, most people don’t know how to use it properly. Here are a few mistakes, and ways to avoid them, that can help people use the news properly.
The financial markets are a battlefield of emotions, information, and capital.
Every day, investors are bombarded with a firehose of news: economic data releases, earnings, geopolitical events, and breathless headlines from talking heads on financial TV. The temptation to act on this news is overwhelming, especially when it’s presented as urgent or market-moving. Here’s the truth: reacting to news is one of the fastest ways to sabotage your portfolio. Why? Because successful investors have a plan, know how to make rational, not emotional, decisions, and are super focused. Most people can’t beat the market and one of the main reasons is because they are making emotional, not rational, decisions and constantly reacting to the latest headline du jour.
In my years of investing, analyzing markets, and coaching investors, I’ve seen countless traders and investors fall into the same traps when they let headlines dictate their decisions. In this article, I’m going to share three common mistakes investors make when investing based on news—and how to avoid them.
Mistake #1: Making Emotional Decisions By Chasing Headlines
The first common mistake I see investors make is that they are making emotional, not rational decisions. This usually happens because they are constantly reacting to news without understanding the broader market context or having a plan (or following their plan). News outlets serve a purpose and help investors make sense of what’s happening when the news is used properly and there is a pre-determined plan. Most investors don’t have a plan. They just wing it. That’s “fun” and “exciting” but it is usually not a successful strategy for long term success. Remember, most headlines are designed to grab your attention and trigger an emotional response. But the markets don’t care about your emotions that’s why it is critical to have a plan and then step back and trade your plan. Something I’ve learned over the years is that people who chase the market or chase the news without a plan or analyzing the bigger picture usually get burned.
Another important thing to consider is that most news is often already priced into the market by the time you hear it. Professional traders and algorithms move faster than retail investors, digesting and acting on information in milliseconds. By the time you and I read a headline and hit the “buy” button, it’s too late. This is why chasing headlines is a loser’s game. Instead of reacting impulsively, investors need to ask: What’s the trend? Am I aligned with the trend? Remember, there’s only three ways a market can move: Up, Down, or Sideways. Is the market in a confirmed uptrend, downtrend, or range-bound? All this can be determined by analyzing price. People can also use objective tools like moving averages or relative strength to gauge the market’s health before making a move. I’ve learned it is usually best to respect the trend.
Mistake #2: Ignoring the Noise-to-Signal Ratio
The second common mistake I see people make is failing to distinguish between noise and a trading signal. Not all news is created equal. A lot of news is short-term in nature or “noise” designed to trigger an emotional reaction. Most of it does not move the needle or impact the long-term outcome. A signal, on the other hand, is the high-probability event often triggered by price moving above or below a pre-determined level. A signal is information that actually moves markets up or down over time.
I call this time arbitrage. That simply means that most people can’t beat the market because they are not looking at the forest (long-term trends), instead they are looking at the leaves on the trees (intra day action). Most people aren’t even looking at the trees. They are caught up with the intra-day noise which barely moves the needle. Here’s another thing I learned since I first started trading in the 1990’s: Most days don’t matter on Wall Street. It’s crazy at first but if you step back and think about it. Most days don’t really matter when you zoom out and look at the long-term trend.
Mistake #3: Letting News Override Your Plan
The third and most dangerous mistake is letting news derail your investment plan. Just about every successful investor has a plan—a set of rules that dictate when to buy, sell, or hold based on their strategy, risk tolerance, and goals. But news has a way of triggering fear or greed, causing even disciplined investors to abandon their playbook. This is where emotions hijack logic, and portfolios tend to take a beating.
The key to avoiding this mistake is to develop a disciplined process or a trading plan that is tested and will guide you in and out. This way you have rules (or guidelines) you can follow that help you create structure (something that most people don’t have in the market) and a sound trading plan. After that is done, your job is to get out of your own way and trade your plan.
Another powerful key is to prioritize timeframes that match your investment horizon. If you’re a long-term investor, daily fluctuations driven by news are largely irrelevant. If you’re a short-term trader, focus on how news aligns with technical levels, like support or resistance zones. Finally, lean on objective metrics like price action or volume to confirm whether the news is driving real market behavior. If the market isn’t validating the news with sustained price movement, it’s probably noise. Tune it out.
The lesson here is that your plan should be your anchor. Before you even think about reacting to news, revisit your strategy. Are you a trend follower? A value investor? A momentum trader? Your plan should dictate your actions, not the latest headline.
For example, if you’re a trend follower, you might only buy when a stock or index breaks out above resistance on strong volume, regardless of what the news says. If you’re a value investor, focus on fundamentals like price-to-earnings ratios or free cash flow, and act when the news aligns with a clear undervaluation signal. Respecting risk is another super power in this business. Having a stop-loss or exit strategy in place to limit downside risk is a skill that most successful investors have. News can be a catalyst, but it should never override your system or your risk tolerance.
How to Break the Cycle
Here are three actionable steps to use the news and break the negative cycle:
1. Focus on Price Action Over Narrative: The market’s price action—how stocks, sectors, or indices are actually moving—is primary, everything else is secondary.
Focus on price, not the news.
2. Develop a News-Filtering System: Create a checklist to evaluate news. Ask: Is this information new or already priced in? Does it align with the trend? Is it a primary source or someone’s opinion? If it doesn’t pass your filter, ignore it.
3. Stick to Your Plan Religiously: Write down your investment strategy and review it regularly. When news hits, check it against your plan before acting. If it doesn’t fit, do nothing. Discipline is your edge in a market full of noise.
The Bottom Line
The financial news is very powerful when used effectively. Successful investing requires patience and discipline. Chasing headlines without context, failing to filter noise from a signal, and letting news override your plan are three of the biggest mistakes I see investors make. Here are some ways to avoid making those mistakes that I learned from coaching people on SmartMoneyCircle.com. First, focus on price. Second, develop structure (a plan) or a robust news-filtering system. Third, trade your plan, and stick to your strategy. You can avoid these traps and position yourself for long-term success. Don’t let the news turn you into a reactive investor—be the one who stays calm and capitalizes on the news.