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Steady Trade Podcast Episode 4: How and Why Stocks Move
Stock prices change. That’s easy enough to understand, right? But what’s not quite as easy to understand is how and why they move. What factors determine which stocks will move and which will not, and how rapidly? Furthermore, what are the catalysts that trigger movement?
In Episode 3, hosts Tim Bohen and Stephen Johnson discussed choosing the best stocks to trade. In Episode 4, they build upon the subject by exploring the phenomenon of stock movement. What does it mean for a stock to “move”? And further, what factors cause a stock to go up or down in value? As it turns out, it’s not as unpredictable as you might think. By the time you finish listening to this episode, you’ll have a much firmer grasp on how to reliably monitor stock movement.
Stock movement 101: looking for spikes
As Tim shares in the episode, particularly for new traders, it’s important to focus on stocks that are “up”. There’s no point in trading slow moving stocks if you are just starting or have a small account; it simply won’t deliver the results you want.
Therefore, a stock spike is what you’re looking for. If a stock is spiking, there are multiple opportunities to make money on both the up and the downside, both as a buyer and by short selling. But how can you tell if a stock is in the perfect Goldilocks zone where it is spiking, but not too far or too fast? In the episode, Tim and Stephen share their own experiences with approaching a stock spike and offer specific percentages to look for.
Catalysts: the key to stock movement
A catalyst is the thing that can cause a stock to spike (or to fall rapidly). Basically, a catalyst is any happening or event that can affect the company’s value or offerings. To determine potential catalysts, you might follow the news, earnings, announcements, contracts, and fundamental opportunities related to the company in question. However, as you’ll learn, it’s not quite as easy as just seeking any old catalyst.
The trouble with monitoring catalysts and stock movement
Unfortunately, monitoring catalysts to track movement is an imperfect system. In part, that’s because a lot of news which is publicly released is biased or self-serving. For instance, a company may issue press releases, but they can be spun in a favorable way that might not be completely accurate.
As Tim and Stephen discuss, a far more accurate picture can be gained through reviewing a company’s quarterly earnings reports, which are mandated by various regulatory agencies. These reports offer a much more realistic look at the health of the company and can help traders determine the worthiness of buying. Trouble is, these reports are only issued a few times a year. So where’s the middle ground between sifting between what’s real and not having to wait for the facts?
Keeping track of catalysts requires effort and dedication, that’s for sure. However, there are some tricks that can help you intelligently discern when a catalyst is going to positively affect a stock.
Monitoring stock movement intelligently
As you learned in the last episode, there are certain tried and true methods for determining what stocks are in play. In Episode 4, Tim explores what catalysts to look for specifically, when in the so-called “earnings season” (the period one or two weeks after the last month of each quarter) to look for them, and how to cross-reference catalysts with earning reports to make more educated decisions on investment opportunities.
Tim and Stephen review various catalysts such as press releases, contract wins, new deal announcements, sympathy plays, earning winners, and others that can have an effect on the value of a stock. Tim offers helpful tips on how to look at a company’s history and what positive markers might indicate that it’s a good idea to buy; alternately, he advises on some red flags to look for that might make you want to avoid investing.
Ultimately, the decision is yours, but learning about how stocks move can help you improve your trading and make more educated investments.
Bonus: catchphrase faceoff!
While Tim and Stephen agree on a lot of subjects during this show, they can’t come to an agreement on whose stock movement catchphrase is superior. Leave a comment in the show notes and let us know which you prefer!
To celebrate the first season of the Steady Trade Podcast, we’re offering some incredible giveaways. Check out the giveaway page here, and stay tuned for future episodes for more information on how to specifically look at, understand, and monitor stock charts.
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