Stock Market Strategies
There are of course thousands of way to find a stock to buy in the hopes it will go up so that when you sell it you can make a profit. Many of these strategies contain a certain amount of throwing darts at a dart board type of risk. Successful traders do a lot of research. The fact is people who enjoy doing research are always the most successful traders because that is truly the key to winning. You have to know exactly what you are buying, exactly why you are buying it and exactly where you expect it to go or simply put, when to sell. It's the WHAT, WHY & WHEN of picking and trading a stock. Smart ass answers like I'm buying it to make a profit are not helpful and if you think that way I would suggest you stay out of trading.
Finding the Catalyst
One of my favorite ways to pick a stock to trade is to try to find earnings winners, stock that have new positive NEWS and stocks that are being chatted about in the various stock trader chat rooms. Many people like to subscribe to stock trading guru's picks but I have found it to be true that traders that sell their picks always buy a stock then alert the pick to their subscribers which often drive up the demand for the stock and thus the price which in turn gives the trader selling the pick someone to sell to at a profit. The more successful the trader is the more subscribers he has and thus the more this can be true. In light of this it is very important for new traders to learn to do research for themselves so that they know the what, why and when.
An example of verified trade I made
On 2/16/2015 I was reading the PR Newswire feed and saw an article about First Solar entering into a contract with Apple to purchase some property with First Solar to build a solar farm there. I immediately recognized that the news of this contract would be a catalyst that would move First Solar stock price up. Because the stock price was $48.88 already I knew I could not afford to buy all that many shares. The same reasoning that I have never owned shares in Apple. I did however purchase call options on the stock but the stock didn't really move up enough to cause the options to be of that much value because I purchased them to to far into the money. I ended up losing money on the calls as the expire date was almost a week before First solar was to report earnings.
Looking at First Solar's fundamentals I discovered that they were already a solid company with good debt to cash on hand ratio so I decided to stick with my original idea and bought some more call options to try to capture some profits when the stock moved up as the earning date arrived. Earnings always draw a lot of interest to stocks and a stock that has a contract with Apple is bound to move up or so I thought. On the morning of Feb 23rd I acted. The bid price for Feb 27 calls with a strike price of $50 was 1.50, so I bid $1.51 for 5 options. The market opened and the stock move down and soon my offer was filled and I owned 5 calls on First Solar. The stock flat lined all day pretty much never moving enough to make my calls worth much more than what I paid for them however when the market closed that day something happened. A new News release about First Solar came over the wire that said First solar who up to then had only constructed solar farms, was going to enter into a partnership with another company to not only build a large solar farm but they were going to own them as well. This caused the stock to jump up $5 a share in after hours trading.
The next morning was even better as the stock price continued to jump up another $2 a share putting the stock price at about $56.88 which was $8 higher than it was when I bought the call options. The stock spiked over $57 but the options didn't move that fast. The stock came down and little and suddenly the options started to sell. As the stock moved back up toward $57 I saw the options were now moving with it so I places an offer to sell my calls for $7.60 when the option were at about $6.90 to $7.20. I was shocked to see that the stock never reached its previous high but the options jumped up to $7.90 and I I had been filled. The options came right back down but I was done. I banked $3021 on options that cost me a total of $766.86. The $3021 is after brokerage fees of course.
So you see it was the News of the contract win with a large company (Apple) coupled with more News of the partnership that really moved the stock. What did the chart say? Who knows? Who cares? News moves stock price as it draws traders interest to companies. New and contract wins are 2 of the most important catalyst you can find. The contract has to be with a well known company of course and stocks usually go up if they beat earnings but not always. You have to remember that institutions that own large amounts of shares can sell their shares at any time and often they will sell into a earning win to get the best price for their shares which can even drive the stock price down on a stock that beats earnings by $0.20 per share. It's doesn't happen often but be warned and never risk more than what you can afford to lose, which is why I only bought 5 calls instead of 100. I only do the most basic of option trading as it is very difficult to sell options at times if there is no one wanting to buy them and when they expire they become worthless unless you can afford to exercise them which means you have to use them to buy the stock. 500 share of FSLR would have cost me close to $30000 if no one had purchased my options. Also it is important to note that FSLR did not beat earnings and the stock dropped back down when the earnings report came out. I took profits before earnings because I didn't want to risk FSLR not meeting earnings and I was correct. If they had beat earning the options coulda, woulda, shoulda been worth thousands but that's trading. GREED will cause you to lose every time.
BELOW IS A COPY OF THE SCREEN SHOT I POSTED ON PROFITLY TO PROVE THE TRADE IN THE AFOREMENTIONED STATEMENT ALONG WITH A CHART SHOWING MY TRADES UP TO THAT DATE.
Please note that my taking profits and believing in my trade is because my Mentor Tim Sykes taught me to trade wisely, cut loses quickly and take profits as stocks go up and not get greedy. Sykes is the only mentor I knows of who does not over charge his students and more importantly teaches you to be your own trader. All the other gurus simply want you to follow their alerts so they can sell their shares to their followers. In my experience anyway. Tim Sykes created Profitly so that he and his followers could be transparent about all their trades which simply means we verify all of our trades directly form our brokerage accounts to prove we really did the trades we say we did. Again no other guru does that.