The most explosive stock moves almost always occur with some type of news catalyst. But not all news catalysts are worth trading.
When you look at all the stocks gapping up and down every day, it is essential to know the catalyst behind each stock you are considering to trade. We get a lot of questions about what are the best news catalysts to trade off of. Today we will talk about the best and worst stock catalysts for momentum trading:
Positive Quarterly Earnings Reports
Positive quarterly earnings reports will ignite some of the strongest moves in stocks. Quarterly earnings reports draw the attention of investors on all time frames. Long-term shareholders make decisions about their positions based on these reports, and will often put on new positions after a strong report.
Momentum traders like us will also play these because this catalyst brings in volume and range into stocks, which creates high-quality day trading opportunities. Earnings reports can cause multi-day pushes that lead to great swing trade opportunities.
They also bring a lot of intraday momentum which makes them great for day trading. Positive earnings reports tend to bring the cleanest moves on the short term and long term time frames. Learn more about how to trade stocks with positive earnings reports in the video below:
Positive Drug Trial Results
Biotech companies will frequently have news updates about the status of clinical trials for drugs they are developing. Company press releases about these developments, whether its FDA approval, successful drug trial results, all have the potential to bring in volume and range into these stocks. Learn more about clinical trials here if you are unfamiliar.
Biotech stocks can offer some of the best day trading opportunities after this catalyst. A ton of range and volume will come into these names at the market open after these press releases.
A Catalyst to Avoid: Buy-Outs
Many inexperienced traders make the mistake of trading a stock that has just had a buyout. They see a stock gapping up 50% with a lot of volume. They get excited and look at the daily chart, and also see that it is breaking out.
However, the company just got bought out by another company, and the stock is just trading sideways in pre-market. A stock buyout doesn’t bring any momentum into stocks. The buyout is usually at a set share price, so there is no reason for the stock trade outside of that tight range. This is a catalyst to avoid as a trader.
Poor Quarterly Earnings Reports
One of the best catalysts for shorting stocks is negative earnings reports. They bring in the exact opposite reaction of a positive earnings report. Long-term investors and shareholders are looking to unload and exit their positions due to the bleak outlook of the company. This creates some amazing shorting opportunities for momentum traders like us. Here is a trade review of an earnings breakdown to show you how we trade these setups:
In our upcoming webinar, we will talk even more about the best and worst news catalysts to trade: