Day Trader Tools - Buying The News
Now wait a minute you say. Isn't that suppose to be "buy the rumour, and sell the news"? In a great many cases that works very well too. But we all know that many times, rumours are just that, and the news never arrives.
After many years of trading stocks, I am a personal advocate of following the volume. When a stock has unusually high volume, it's "in play" for what ever reason. There are a great many opportunities here, because the trading is very liquid, meaning it's easy to get in and out.
As an example, when a very good news release comes out, a stock can gain 10% to 25% without too much effort. The dilemma for the day trader is simply, when to buy.
Buying the news can pay off extremely well, and be a powerful day trader tool. Just stay with me here.
Again my strategy is simply, watch for the volume first, telling you it's in play, and then wait, and I mean wait for the pullback. If a stock is $1.00 when the good news hits, it could easily spike to $1.25 and trust me, you don't want to buy at the high, ever! So you wait for a mid morning or mid afternoon pullback to say $1.15 . Level 2 is a great tool to work with as it clearly shows where the buying and selling resistance levels are.
A stock that pulls back will generally always try to retest the earlier high of $1.25 . Now you have some maneuver room as a day trader, buy at $1.15 and sell at $1.25 or wait, and sell at a higher high.
But let me give you a real example at the time of this writing (July 14, 2009). When the market closed yesterday Evolving Gold Corp (EVG.V) a Canadian junior mining company, had a very positive news release.
As far as Day Trader Tools & Buying The News is concerned, it certainly paid off handsomely in this example.
It literally sent the stock skyward this morning. It closed yesterday at .45 and opened at .58 and went on to close at .95 . This stock normally trades no more than a few hundred thousand shares a day, today it traded in excess of 15 million shares. It opened at .58 and spiked up to .68 before the mid-morning pullback hit and it came back to .58, but not for long.
So in this case, you could have easily "bought the news" on the pullback. Say you bought at .62 and within a few hours sold at .88 . No waiting on a rumour that may never materialize, you "bought the news" smartly, and made a cool 42% in one trading day.
Waiting for the pullback forces you to never chase a stock, and you will be tempted many times. If there is no pullback, I just pass, because I know there will always be a pullback, if not today, then likely tomorrow.
The key to all this working for you as a day trader is to read the news almost immediately after it has been released. Personally, I use the Stock Research Portal. I like them primarily because they are focused on the same sectors I am, and that's the mining, oil and gas sectors.
With the Stock Research Portal being so focused, I don't have to wade through 100 news releases just to find a good mining sector news release. I want to read that news as soon as it's released, so I can act quickly, and this site does that for me, because they are so concentrated on the mining, oil and gas sectors.
Of course you'll really like all the other features available on this free site too. You can look at any company's history, shares outstanding, insider trades, sedar reports etc. I guess I'm saying, if you like due diligence, then you'll really come to love this site.
As day traders, we've all bought the rumours, and we've all been burned. At the very least, I suggest you check out the Stock Research Portal and see their very focused news section. I think you'll agree, it's a very impressive site and better still, it's completely free.
About The Author: Mike Perras is a former media executive and faculty of business professor. Today he manages the Canadian Stock Alerts blog It is updated weekdays in real time, and the primary focus is to find stocks with higher than usual trading volume. Mr. Perras doesn't advocate buying the stocks he mentions. Nothing in this article is either designed to meet readers personal financial situations, or intended or taken to be investment advice.