How a Stock Market Overreacts to News

If you are a stock trader or investor, then you surely have observed market over reactions in the past. A story breaks, and when you even get to read the very first word of this article the stocks related to that story have taken huge jumps up or down. I have been trading stocks for a significant while now, and have observed trends for sure. I believed I'd explain why I think markets, specially the stock market over over reacts to both good and bad news almost instantly. Be warned that this is simply not something I trade on, as I'm more of a long term investor/trader, nor should you read too deeply into my reasons. 2 Reason the Market often over shoots it's target on news:

#1 The Media Often Overreacts
Much like any news story, if the media thinks it can gain your viewership by reporting on a one sided basis, they often will. The media is noted for their exaggerations sometimes, and its part of every reporters thinking. The bigger the news story, the more those who listen in, so, even in case a media outlet claims to be fair and balanced, they will probably over hype, or over respond to many breaking stories. Because of the media's overreaction, investors usually overcome excited and either buy or sell stocks related to the given news story for prices well above or below it's eventual target price.

#2 Panic
As traders see a breaking news story that'll affect an inventory, they panic, and instead of taking even just a few momemts to read the whole article, or listen to the whole news broadcast, they hit the buy or sell button with regards to the story's baring on the stock. Sellers, if negative, or buyers if positive flood the marketplace, pushing an inventory in one single direction before people becomes aware of all of the details and more rational minds bring the stock back from the extreme it really hit.

As a trader you've to sometimes sit out and be patient until you, yourself have all the data necessary to create an informed rational decision. Ignorant decisions centered on quick glimpses of over hyped media will certainly lose you money in the long run See It Here.