Markets do not move because a headline sounds positive or negative. They move because the news is better or worse than what investors had already priced in. That is why strong earnings can trigger a sell-off, weak results can spark a rally.

The market trades expectations

A company can report record revenue, rising profits and strong demand, yet still fall if traders expected even better numbers. The headline looks bullish, but the result is disappointing compared with the market’s assumptions.

The opposite can also happen. A business may report lower sales, weaker margins or cautious guidance, but if investors feared a much worse outcome, the shares can rally. Bad news becomes bullish when the actual result is less damaging than expected.

Before reacting, traders should ask:

• What was the mar ...