The most explosive stock moves almost always occur with some type of news catalyst. 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 offers the opportunity to generate large returns in a short period of time. 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:
Poor Quarterly Earnings Reports
My personal favorite catalyst 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:
Positive Drug Trial Results
Biotech companies will frequently have the news updates about the status of their drugs they are developing. Company press releases about these developments, whether its FDA approval, successful drug trial results, all of these have the potential to bring in volume and range into these stocks.
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 20% 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.
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