eli5: How do stock traders know when to buy and sell, is it pure guessing or is there factors that affect it?
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Stocks rise on good news and fall on bad news. If you could get news earlier than everyone else, then you could buy before good news (that is, before prices rise) and sell before bad news (that is, before prices fall). Getting news early is the hard part.
Some ways to get news early:
* cheat: e.g., if your spouse works in the finance department of her company, and she knows that earnings will disappoint, then short her company (but actually don’t because you’ll get caught).
* fancy models: make a machine learning model to predict the direction of stock prices in the next 5 seconds and follow its suggestions
* react to news faster than everyone else: If, when you hear good news, you click “buy” before everyone else, you’ll make money. Of course, you need machines to digest news and click buy now.
* instinct: A few people, all billionaires, can sometimes predict what the market will do in the next few minutes, and they make a lot of money doing it
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