The media, particularly television, has a profound effect on the development of public consensus which can drive movement in the markets. People believe what they hear in the news, particularly on television. The prognostications of television economists and financial experts bombard the public, molding public opinion and forming consensus. The problem is that the views of only a small number of people are aired, but aired repetitively, lifting their judgments from the realm of personal opinion to widely accepted fact. The savvy futures trader can make use of this phenomenon.
Economic comment and media hype direct and create commonly held views. Once a market believes in a commonly held view, it will eventually break sharply against that view. The size of the move in the opposite direction is a function of the level of disappointment in the coming reality. In other words, a gap forms between what public consensus expected to happen and what actually happens in reality.
By observing events, savvy futures traders can make money on the developing gap in two ways:
- by patiently waiting as consensus builds, then acting as the break in consensus occurs, or
- by aggressively searching for the contrary scenario that will precipitate the break.
As the public grows disenchanted with the inability of the consensus view to live up to expectations in reality, it will try to protect its investment by moving in an opposite direction. By acting at the point of greatest confusion — the point at which the market starts to turn but before it is in full retreat — can profit, often significantly. The stampede against the formerly held consensus creates a new trend which grows, building a new consensus about the correctness of this new path. Despite the stunned pronouncements of television commentators, who seem to be perpetually caught off guard, the cycle endlessly repeats, creating price points on which savvy futures traders can make money.
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