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The expression " Buy the Rumor Sell the News " is a strategy widely used in the financial markets, including cryptocurrencies. It is based on the idea that the prices of assets often increase due to rumors or expectations concerning a future event, but drop when the event actually occurs. In this article, we will explore the operation of this strategy, its impact in the crypto ecosystem, and how investors can use it to their advantage.
Table of contents
Decryption of expression: What does " Buy the Rumor, Sell the News " mean?
" Buy the Rumor " means buying an asset based on expectations or rumors concerning a positive event. For example, an imminent announcement of a partnership or the launch of a key functionality can arouse price increases.
" Sell the News " consists in selling the assets once the expected event occurs. For what ? Because the market has often already integrated expectations into the price before the official announcement. As a result, investors sell to secure their profits, which can cause market correction.
Concrete example:
A notable example is the launch of Cardano (ADA) Alonzo , who introduced smart contracts on the Cardano blockchain in September 2021. Before this major event, the ADA price experienced an arrow, fueled by investors' expectations and media craze. However, once the event has passed and the intelligent contracts activated, the ADA price has started to fall, because many investors have sold their tokens to collect the gains made during the speculation period. This example perfectly illustrates the dynamics " Buy the Rumor , Sell the News ": the anticipation of the event has increased the price, but the realization of the news has led to a correction.
Why does the strategy " Buy the rumor, sell the news " work?
Several factors explain why " Buy the Rumor, Sell the News " remains a popular investor strategy:
1. Market anticipation
Financial markets, including that of cryptocurrencies, are widely influenced by expectations. When a rumor or a major announcement is approaching, traders anticipate a price increase and buy accordingly. This anticipation creates increased demand even before the event occurs, resulting in prices.
2. Sale to collect profits
When the new falls, many investors take the opportunity to sell their assets and secure their earnings. This is explained by a simple logic: if the price has already increased in anticipation of the event, the opportunity to maximize profits seems ideal at this time. This massive sale exerts sales pressure on the market, causing a rapid drop in price.
Why do investors remove their earnings when the news falls?
Most investors know that the market has already integrated the news into the price of the assets. In finance, it is said that " prices reflect the available information ". Once the event occurs, there is no more surprise to feed a new increase. By selling immediately after the announcement, investors seek to avoid a possible fall due to the excess of prior optimism.
3. Mass psychology
The markets work as much on logic as on emotion. Before an announcement, the euphoria and the fear of missing an opportunity ( FOMO ) push investors to buy. However, when the news falls, fear often takes over, triggering a massive sale. This phenomenon can be amplified by doubts or results lower than expectations, even if the event is objectively positive.
How does panic occur during the event?
Panic can occur when market expectations are disappointed or if the previous price increase seems unjustified. Traders having bought hoping for a pursuit of the increase can yield to anxiety by noting the massive sale of others. This behavior leads to a descending spiral, where the fear of greater losses pushes more investors to sell.
4. Post-event uncertainty
Once the event has passed, the market often lacks new catalysts to maintain the price at its high level. In the absence of immediate future developments, the asset can lose its value simply because investors move their attention (and their capital) to other opportunities.
In summary, " Buy the Rumor, Sell the News " works because the market reacts largely to anticipation, and not to the event itself. When expectations are satisfied, investors take their profits, causing massive sales that trigger a fall in prices.
Buy the Rumor, Sell the News IN CRYPTOMONNIA
In the crypto ecosystem, this strategy is particularly significant due to the absence of strict regulations and the volatile of assets.
Airdrops: an ideal example
When a project announces an Airdrop (free distribution of tokens), the price of the native token often increases before the event, but decreases rapidly after distribution.
More information here
Halvings: a frequent catalyst
Another example. Historically, the price of Bitcoin climbs in the months preceding a halving , but the trend slows down or reversed shortly after to resume a few months later.
The risks associated with the " Buy the rumor, sell the news " strategy
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The impact of inaccurate rumors
Even if the strategy is based on the anticipation of rumors rather than on their veracity, a erroneous rumor or ignored by the market can limit the rise in prices. For example, so few investors believe in rumor, demand will not increase enough to trigger a significant increase.
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The complexity of market reactions
The phenomenon " Buy the Rumor, Sell the News " depends on the psychology of investors, but it is not guaranteed. If an event arouses less craze than expected, even during the rumor phase, prices can remain stable or even lower. In addition, if the event is considered to be "already included" in the price before its announcement, it can lead to immediate correction.
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Operational costs
The multiplication of transactions necessary for this strategy can lead to significant costs, especially on platforms with high costs.
The role of the FOMO and the Black Swans in the strategy " Buy the rumor, sell the news "
The fear of missing an opportunity (" FOMO ") is a powerful engine that pushes many investors to buy during rumors, thus contributing to the rise in prices. Although unpredictable events, called " Black Swans ", such as wars, centralized bankruptcies or sudden regulations, can temporarily disturb the markets, their impact on substantive trends is generally limited. Even in the face of bad economic news, cryptocurrencies often show notable resilience, with short -term corrections followed by a return to the general trajectory. It is nevertheless crucial to remain informed and vigilant about these unforeseen events, without giving in to panic.
FAQ: All about " Buy the Rumor, Sell the News "
1. What is the “ Buy the Rumor , Sell the News ” strategy?
It is an investment method based on the purchase of an asset when positive rumors circulate, followed by the sale when the new official is announced. This makes it possible to take advantage of the anticipation of the market and to avoid the post-year correction.
2. Why does the price often drop after a positive announcement?
Investors often integrate good news into the price before their official announcement. Once the news is confirmed, the craze decreases, which can cause a correction or a massive sale to secure gains.
3. Does this strategy work for all types of assets?
It is mainly used in volatile markets, such as cryptocurrencies, actions or raw materials. However, it requires good understanding of the market and key events.
4. What are the risks linked to this strategy?
Rumors can be false or exaggerated, causing losses if the market does not react as expected. In addition, increased volatility around ads can amplify the risk of unforeseen price movements.
Conclusion: Understanding market dynamics via " Buy the rumor, sell the news "
The “ Buy the Rumor, Sell the News ” strategy is based on complex psychological mechanisms and market reactions. Investors must navigate between anticipation, risk management, and understanding of factors influencing trends. Phenomena like the FOMO (Fear of Missing Out) play a key role in impulsive purchase during rumors, while the Black Swans, although rare, can disrupt forecasts.
By deepening these concepts, you will be better armed to understand market behavior and refine your investment strategies. To find out more, discover our articles dedicated to FOMO and Black Swans by clicking on fat words.
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Yohan Uzzan
Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.
