S&P 500, Gold Play a Crazy Game of Poker

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (Options Trading Signals) -- Recently I have had several members of my service requesting my thoughts on the macroeconomic backdrop which is shaping financial markets. I decided I would proffer an article about why I find such practice to be a total waste of time. Don't get me wrong, acknowledging what is going on in the world around us as a trader is important because economic data and geopolitical events shape social mood. Social mood is just one catalyst that directly impacts financial markets and it is important for traders to monitor the world around them.

However, building trading plans based on events with outcomes that are unknown and unknowable is foolish. If an event's outcome is unknown, one would surmise that the market's reaction to the news is unknown as well. If a trading plan is built on multiple unknowns it can lead to a disastrous outcome for trades built around such premises. I pay attention to the headlines, but I don't base trading decisions solely on the news cycle. Spending time building detailed thoughts about the future of events and then trading based on those events also cause traders to become biased with regard to price action.

Let me be clear, I do read analysis from experts on global events, but I don't build trading plans around what I read. I try to look at the news and decipher what impact events will have on social mood. Once I have what I feel to be a grasp of social mood, then I look at fundamentals, earnings reports or economic data points, searching for more clues about social mood and the strength of specific economies. From there, I use basic tape reading and technical analysis to help identify trades that have sound risk/reward. Trading is not a guessing game, nor is it gambling. The best traders take a variety of forms of data, interpret them, and then build trades that make sense based on probability.

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