The Secret To Supercharging Your Trades

The Secret to Supercharging Your Trades

There’s a big difference between trading and investing. When you invest in a stock, you should be going in with a long-term view. You can certainly change your opinion as time goes on and events warrant it. But you shouldn’t plan to hold a stock for years and then get spooked by one bad earnings report (unless something extraordinary happens, like fraud).

Trading is different. A trader is often looking for a specific catalyst. A technical trader (one who uses stock charts) might see a breakout to a new high as a reason to expect the stock to go even higher. More complex chart patterns, meanwhile, can even be used to predict future catalysts before they take place.

Additionally, many traders view earnings reports as important catalysts. It’s not uncommon to see a stock surge or plummet after reporting quarterly results. For example, last month, ON Semiconductor (ON) surged more than 14% after reporting better-than-expected earnings for the third quarter.

Ambarella Inc. (AMBA) reported Tuesday after market close and jumped 25% on Wednesday morning after beating Wall Street’s prediction for its third quarter revenue. Box Inc. (BOX) also reported Tuesday after market close and went up 14% on Wednesday morning in response to the announcement of stellar revenue growth.

It’s important to have near-term catalysts for your stock. Otherwise, you have no reason to believe the price will quickly move higher – other than “It’s a good stock,” which isn’t a valid rationale at all.

Without a reason to expect a stock to jump in the near-term, your investment could be dead money. It could just sit there, doing nothing. If you’re putting your money to work in the market in the short-term, you want the trade to be completed fairly and quickly. Make your money, get out, and move on to the next one.

Below are a few potential catalysts that you can look for to get your stock moving quickly.

Earnings. Like I said above, earnings reports are a common catalyst. Most companies announce earnings dates in a press release a few weeks before the report comes out. If the company you’re interested in has not yet announced its earnings report date, simply add three months to the last quarter’s report date and you’ll likely be pretty close.

Analyst upgrades. When a new buy or sell recommendation is issued, stocks can move significantly. So I want to give my trades the best opportunity to be upgraded. To do that, I find stocks that analysts hate.

If most analysts already have “Buy” ratings on a stock, the chances of an upgrade are slim. The bandwagon is full. But if most analysts rate the stock a “Hold” or “Sell,” you can sometimes get a nice move higher when they upgrade it. I would say to look for stocks that don’t have many existing “Buy” recommendations.

Short squeeze. If a stock is heavily shorted (traders bet the stock will fall so they sell it first and buy back later), every tick higher in the price of the shares is causing pain for the shorts. Eventually, when the losses get to be too much, the shorts exit their position by purchasing the stock.

That creates more demand and pushes the price even higher. As the price climbs, more shorts buy the stock and you can get a powerful move from all the extra demand for the shares. I would say to look for stocks with more than 10% of the float (the numbers of shares available for trading) sold short.

Stocks typically don’t make big moves for no reason. You need a catalyst that will push your stock higher in the near-term. If you can’t find one, you may want to find a different stock.

Disclaimer: Nothing published by Wealthy Retirement should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not ...

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