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3 Tips to Make the Most Out of Stock Catalysts

3 Tips to Make the Most Out of Stock Catalysts

You made it to the last installment dealing with stock catalysts. Congrats!

Trust me when I say you’ll be a better trader for it.

Yesterday I went over a few examples to help you better understand stock catalysts and how they can benefit you.

Let’s wrap it up today with my final three tips.

Key Tips While Dealing with Stock Catalysts

Want to make the most of stock catalysts? Follow these tips.

1. You Must Use a Stock Screener

It used to be that traders had to rely on multiple sources to research stocks. They probably used a trading platform for technical research, then subscribed to various news sites to watch for potential news catalysts.

That’s no longer necessary. Now traders can use a stock screener that combines all of these elements on one easy-to-use program.

That means you can use a stock screener to run charts and review price action, and you can execute trades from it. Even better, you can also keep track of the news and potential catalysts.

StocksToTrade (STT) is my favorite stock screener and trading platform. It’s super easy to search for stocks by percentage gainers, daily highs, and more. These indicators can alert you to potential breakouts.

However, a catalyst can mean the difference between a breakout and a stock that stays stagnant. This can be especially true with low-priced stocks since they tend to move more based on news.

STT includes a news streamer to help you find news that’s relevant to your watchlist stocks. You’ll get instant updates on anything that might affect your stock. You can also scan for specific keywords — if you’re looking for a particular catalyst like earnings winners, STT can help you filter and find potential stocks.

2. Trade Only High-Volume Stocks

Let’s say that you hypothetically just found an amazing catalyst (or series of catalysts): A company in a trending sector hires a hot new CEO — and they announced the cure for the common cold. This stock has nowhere to go but up, so you should jump on the trade, right?

Not so fast. I want you to be ahead of the trend, but I also want you to know that there’s never a sure thing in the stock market. You still have to do research and consider the stock from multiple angles.

One important consideration is volume. No matter how amazing the catalyst might be, if there isn’t sufficient volume, stay away!

Volume refers to the number of shares being traded each day. If the volume is very low, this means that the stock has low liquidity. This means that not a lot of shares are moving. And that ultimately means that it can be tricky to enter or exit a position.

Now, if we’re talking about volume, we have to also talk about volatility. Volatility is a measure of how quickly a stock’s price moves up or down. The faster it moves, the higher the volatility.

With the low-priced stocks I trade, the volatility tends to be higher than higher-priced stocks. That’s because these are up-and-coming or smaller companies, or they might be in still-emerging fields. Simply put: They don’t have the data and stability of large-cap companies.

The volatility can be a necessary evil. Yeah, it can be scary! But it can also help you — if you know what you’re doing.

A news catalyst can increase volatility further. So, you need to make sure that there’s enough volume so that if you decide you want to make the trade, you can get in and out according to your trading plan.

Here’s what could happen without sufficient volume. Let’s say you enter a position and it leads to insane profits. But you hit a big snag: There’s not enough volume. You can’t exit your position before the trend reverses because there aren’t enough buyers. You’re stuck. Goodbye profits!

Nobody likes being stuck in a position longer than they need to be. So make sure there’s sufficient volume. I like to see at least a few million shares in play.

3. Always Seek More Knowledge

If you want to be smarter about stock catalysts, then you need to take an intelligent approach to trading in general.

I didn’t have a mentor, so I had to learn things the hard way. I was disappointed that there weren’t better resources out there for traders, so I strive to be that resource for others.

My curriculum isn’t your typical school experience. Yes, you can learn about the basics of trading. But my real goal is to teach you how to be a self-sufficient trader.

That’s why I tailor my teaching to the market as it is right now, not how it is in general.

The Bottom Line

Stock catalysts can have a powerful and rapid effect on stocks. They can make stock prices surge or plummet in extremely short periods of time.

By educating yourself on common catalysts and their effects, you can better be poised to face them in the future. They can also help support your case for a trade or signal you to walk away.

Of course, stock catalysts shouldn’t be the only deciding factor when choosing stocks to trade. They’re just part of the picture.

Be sure to include them in your daily research and pair them with thorough technical and fundamental research.

Regards,

— Tim Sykes
Editor, Penny Stock Millionaires

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Timothy Sykes

Tim Sykes is the editor of Tim Sykes’ Weekly Fortunes, a bi-weekly penny stock trader.

He also writes the free daily e-letter, Tim Sykes’ Penny Stock Millionaires

Tim’s most famous for turning the $12,415 dollars he received at his Bar Mitzvah into more than $1.65 million dollars in trading profits by college graduation.

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