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Fifteen years ago, Hurricane Katrina taught me everything I needed to know about markets and news. |
Haven't watched financial television since. |
Not because I'm stubborn. Because that storm cost me money and showed me how the game really works. |
The "Smart" Hurricane Trade |
Back then, I was trading with Tom Sosnoff. We're looking at weather reports, watching this massive storm building in the Gulf. Category 5 potential. Oil platforms in the crosshairs. |
We're thinking like everyone else: "This is gonna crush oil infrastructure. Oil's going to the moon." |
But then we get clever. |
"Forget oil," Tom says. "Let's trade Home Depot. When everyone realizes this is gonna be a massive hurricane, people are going to buy everything - plywood, generators, supplies. Home Depot's gonna explode higher." |
Made perfect sense. Hurricane coming, people panic-buy everything at Home Depot, stock goes up. Simple supply and demand. |
So we load up on call ratio back spreads. Big position. Multiple guys in the office took the same trade. |
We're feeling smart. Really smart. |
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When Smart Becomes Stupid |
Then the weather report updates. |
"This thing could turn into a Category 5 in the Gulf." |
Before we could even look back at our screens, Home Depot completely tanked. |
Not down a little. Tanked. |
See, we were thinking: Category 5 = massive demand for Home Depot supplies = stock explosion. |
But the market was thinking: Category 5 = total destruction = nobody's buying a damn thing because everything's getting wiped off the map. |
The market had already disseminated the information instantaneously. By the time we heard "Category 5" on the news, the market already knew Home Depot wasn't getting paid during complete devastation. |
The Screen Gets Changed |
That day changed everything in our office. |
We had a screen dedicated to weather because we were trading oil and storm-related plays. After the Home Depot disaster, that screen got changed. |
The exact term was "F the news." |
We had CNBC running with the sound off. After Katrina, even that got turned off. Never again. |
Why News Is Your Enemy |
Here's what news-free trading has taught me: |
Everything that retail traders have been convinced of is complete BS. |
This morning I watched the S&P 500 sitting on a $72 expected move. That's massive volatility priced in. Real money positioning for real movement. |
You know what moved the market? Order flow. Big blocks. Professional money repositioning. |
You know what didn't move it? CPI data that came in exactly as expected. Another non-event that financial media spent hours analyzing. |
News doesn't drive markets. News explains what markets already did. |
The Real Information Edge |
Want to know what actually matters when you're trading? |
Expected moves. Mathematical probability based on options pricing. |
When I see a $72 expected move and the market only moves $16, I know we're sitting in the eye of the storm. Real volatility is coming. |
The VIX sitting at 25 while everyone thinks things have "calmed down"? That's telling you the market expects more chaos. |
When I see 13,000 Tesla calls trading at the ask within 90 seconds of market open, I don't need to know why. I just need to know somebody's in demand to buy calls, and that's going to force the underlying higher. |
That happened this morning. Tesla moved from 1% up to 2.5% up while I was talking about it. Not because of news. Because of flow. |
What You Can Actually Control |
Here's what Hurricane Katrina really taught me: You can't control information, but you can control your risk. |
You know PCE data, jobless claims, and GDP numbers are coming out Friday. You know that's a "proverbial crap fest of information." |
But you don't need to know what those numbers will be. You just need to know they're catalysts for order flow. |
Markets don't care about the narrative. They care about the positioning. |
You want to know the difference between profitable traders and everyone else? |
Profitable traders stopped listening to explanations years ago. |
We look at order flow. We look at expected moves. We look at where professional money is positioning. |
Why I Never Looked Back |
Every time I'm tempted to check what CNBC thinks about some market move, I remember Hurricane Katrina. |
I remember thinking I was smart, trading the obvious narrative, while the market was already three steps ahead. |
That's why I haven't watched financial news since. And why that decision has made me more money than any single trade I've ever placed. |
The news will tell you what happened yesterday. The market will tell you what's happening now. |
I'd rather trade what's happening now. |
To your success, |
Don Kaufman |
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