Staying On Top Of Breaking Catalysts
While expected catalysts are great, they don’t always happen. At the end of the day, there’s not something happening every day that will cause the type of movement that you see above. At least, not something expected! In fact, there are far more unexpected catalysts per day than there are expected catalysts. So, it’s important to stay on top of these.
The way I go about doing this is through the use of Twitter. To do so, I follow several market leaders on Twitter. Leaders like Quote The Raven, Open Outcrier, and Adam Feuerstein are incredibly active on Twitter and constantly looking for the next catalyst to share. By following market leaders, you’ll get signaled when something happens that’s likely to cause big, unexpected movement. From there, all you need to do is make trades to take advantage of the trends pointed out to you.
Related: 5 Common Diversification Mistakes
Here’s An Example
While no news was expected surrounding Air Methods today, the stock did see an unexpected catalyst. Around 2:00 a rumor broke on Twitter that the company was exploring the idea of selling itself. Of course, if this were to happen, it would generate incredible value for shareholders. So, the stock shot upward in a massive way. Take a look at the chart below to see the result of this unexpected catalyst.
Being Patient Can Save You From Losses
As with anything in life, in the world of investing and trading, patience is a virtue. While positive news is expected to move the market in a positive way and negative news is expected to move the market in a negative way, it doesn’t always work out that way. Instead of just reacting to the catalyst, it’s incredibly important to wait 3 to 5 minutes until a defined trend becomes clear. Once the trend is clear, make trades to follow the trend to the profit.
Knowing When To Quit
Finally, it’s important to know when to exit the trade. As you can see from both examples above, investors tend to overreact to catalysts. So, what happens is that the stock or index will quickly shoot up, far and above what it should. From there, it corrects. Make sure you sell as soon as the correction starts, it won’t always recover and make it’s way back up!
Final Thoughts
As a new comer, I had no idea what a catalyst was. However, the understanding of catalysts has completely changed the way I trade, leading to larger profits. The same can happen for you!
This article has been republished with permission from Modest Money.