What extent should we believe in the market rumors?

<p id="isPasted">In financial markets, rumors should be approached with extreme skepticism. While they are a core part of market dynamics, they are often unverified and can be tools for market manipulation.&nbsp;</p><p>The extent to which you should "believe" or act on rumors depends on your strategy and the specific context of the information.</p><p><strong>1. The "Buy the Rumor, Sell the News" Phenomenon </strong></p><p>Professional traders often treat rumors not as "truth," but as sentiment indicators.</p><ul><li>Anticipation Phase: When a positive rumor circulates (e.g., a potential merger or interest rate cut), investors buy in advance, driving the price up.</li><li>The Reversal: Once the official news breaks—even if it is positive—the price often falls because the "smart money" is selling to lock in profits from those who are just now "buying the news".</li><li>The Risk: If the rumor is false or the news doesn't meet the high expectations set by the rumor, the price can plummet rapidly. </li></ul><p><strong>2. When Rumors are More Credible</strong></p><p>Research suggests rumors may carry more weight in specific scenarios:</p><ul><li>Short-Term Ownership: Rumors are statistically more likely to be followed by actual bids (like takeovers) when a company's stock is dominated by short-term institutional investors.</li><li>Industry Spillovers: Favorable rumors about industry leaders often have "spillover effects" that move the prices of peer companies.</li><li>Price Discovery: Some short-term investors share truthful information specifically to accelerate the market's reaction and profit from the immediate price impact. </li></ul><p><strong>3. The Danger of "Fake News"</strong></p><p>Rumors can also be deliberate misinformation designed to trigger herd behavior.&nbsp;</p><ul><li>Volatility Spikes: Negative "fake news" can trigger volatility spikes of up to 230% on the event day, though markets often correct these distortions within a week.</li><li>Target Vulnerability: Small-cap companies and those with low transparency are more susceptible to being damaged by unverified rumors. </li></ul><p><strong>4. Professional Guidance: "Ignore the Noise"</strong></p><p>Many successful price-action traders suggest ignoring rumors entirely.&nbsp;</p><ul><li>Price Reflects Everything: The "pure" price action on a chart already accounts for fundamental variables and rumors.</li><li>Avoid Over-analysis: Trying to decode every rumor often leads to "analysis paralysis" and emotional trading, which can blow out a trading account. </li></ul><p>At the end of the day, never trade on a rumor alone. Always verify information through official sources like NSE/BSE filings, Reuters, or Bloomberg before committing capital.</p>