Buy the Rumour, Sell the fact. It’s up there with “the trend is...

Buy the Rumour, Sell the fact.

It’s up there with “the trend is your friend” and “you won’t go broke taking a profit” in terms of being quoted. But what does it mean and how to do you avoid ending up on the wrong side of a trade?
“Buy the rumour, sell the fact”, is a used to explain why prices sometimes fall after a positive announcement, when seemingly the reverse should be the case. Although logic should dictate that positive news should uniformly drive a stock higher it really depends on how much it has risen already and it’s potential to continue to surprise on the upside...


Once momentum builds, profits start to accrue. The earlier you get in, the more you stand to make. But as with all trading, a profit is only real when realised. To do that requires that the stock be sold. And this is most likely to be when an announcement is made.

Announcements are the life blood of the market. They attract traders; result in portfolios being adjusted, and analysts moving their price targets. They also provide traders an opportunity to unwind positions as volume spikes.

Once the facts are known however speculators will often sell and lock in profits. Depending on how far a stock has run up prior to an announcement often determines how much pressure it comes under after the event....

All of it:

http://www.smh.com.au/business/cfd/buy-the-rumour-sell-the-fact-20100223-ovv5.html