After I’ve performed my nightly scan, I then like to find out the catalyst for each of the stocks that seem interesting. Finding out why a stock has gapped up or down in price is imperative to my trading. I hear a lot of guys who brag about how they only “trade the chart”. Don’t be fooled, those guys are checking the news in a lot of cases before going into a trade.
There are some instances where the catalyst isn’t important. Those would be times when your day trading momentum stocks that are going through whole-dollar amounts with strong volume.
To discover why a stock is suddenly gaping up or down, I first check for news on Yahoo Finance. I generally find what I’m looking for here. If a stock is going up without a press release or news story in circulation I then check Twitter.
Here I use the Twitter search box to type in the stock symbol I’m interested in. For best results, I always make sure to place a ($ sign) before the stock symbol like this, $AAPL. You’ll find a lot of Spam here, but what I look for are links to recent news stories. If I can’t find a news story, at least I’ll discover why traders are interested in the stock.
With the right news story a stocks’ price can go from reality to fantasy in an instant!
$LAKE – Ebola Outbreak (Ebola Suits) – Oct 2014 (National News) Stock went from $5.00 to $29.00.
$DGLY – Ferguson, Mo (Police Cams) – Sept 2014 – (National News) Stock went from $5.00 to $33.00.
$WTW – Oprah buys shares of Weight Watchers – Oct 2015 – (National News) Stock went from $6.00 to $26.00.
The bigger the news story, the more interest a stock will have. Increased interest leads to volume, which in-turn results in price action. None of the stocks shown above had a dramatic increase in revenue. The stocks were up BIG on news alone.
What to look for, and what to avoid.
Headline news stories have an effect on the stock market. A story that you see on the first page of USA Today or on the front page of CNN.com is likely to effect the mentioned industry if the news is somehow business related.
Any time you see a company press release or news story that mentions the FDA, pay close attention to that stock at the market open and throughout the day. Any type of FDA news gets people excited and drawn in. Phase 1, 2 and 3 news brings in a crowd. FDA approval brings in everyone!
Celebrity investors such as Warren Buffett, Carl Icahn, George Soros and most recently Martin Shkreli can move a stocks price after becoming associated with it.
I stay away from company buyouts and you should to. Once a buy-out target price has been set, that’s it. The stock price will generally stay at its buy-out price until the sale has finalized. I also stay away from oil and energy stocks. Trading commodity stocks requires some knowledge of the industry.
Experienced traders are able to day trade momentum stocks without news. For those just starting out, I would recommend becoming familiar with how certain news stories effect prices. The best traders know how to judge a news story and short the stock for huge profits as the hype is coming to an end.
I don’t chase after news stories. I identify charts that look good to me during my nightly scans. I then look to see what news stories are driving the stocks up or down. For me, it all starts with the scans, and then leads to looking for news.
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