Before you can enter a trade on any given day, you need to have a list of stocks ready to trade. If you are an active trader, your watch list should be dynamic and reactive to the markets. Having the right stocks in your watch list can make or break your success on any given trading day.
Over the next few days, I will be posting a few articles detailing ways to find stocks to trade. Let’s start with the basics.
When building a watch list, you want to find stocks that are “in play” or “hot stocks.” If a stock is not in play, you really have no reason to be trading it. So, what exactly does it mean when a stock is “in play”? It means that there is some excitement/hype surrounding the stock. People are watching the stock closely and waiting to make a move. This means the stock has a large audience who may support the move when the time comes.
The first way to find a stock that is “in play” is through news sources. When a company releases news, it means something has changed within the business. Consequently, something should change with the stock price. The news is a catalyst. If it is good news, the stock should go up. If it is bad news, the stock should go down.
Most of the news I read is for penny stocks, because these are the stocks that can move 20%, 40%, 50%+ on a single press release. I don’t read much news for bigger companies during trading hours because there are far too many of them, and if it is significant news, I will find the stock when it shows up on my scanners. Below are some places you can find news for penny stocks.:
OTC News (through the OTC Markets newswire) – News directly released through the OTC Markets website
OTC News (through third party wires) – OTC news from third parties.
InvestorsHub News – News released through iHub. The better option for iHub news is to setup news alerts for companies you follow. You will get an email whenever these companies release news. The emails will often send before the news even shows up on the iHub site.
Marijuana Stocks News – This sector isn’t as hot anymore, but I used to check this news a lot. It’s worth a look every now and then.
EquityFeed – This is by far my favorite news source. Unlike other news sources, EquityFeed picks up on almost every news piece in real-time. There is a monthly cost, but a free trial is available if you want to test it out. I will be doing an entire post on how to find stocks through EquityFeed.
Filtering Through News
There are hundreds of press releases distributed every single day. This doesn’t mean that all of them are important. It’s very easy to send out a press release. I could send one out tomorrow if I wanted to. Learning to filter through press releases is a crucial skill for traders who incorporate news into their strategy. Considering that most of the news I read is related to penny/sub-penny stocks, I have to filter out a lot of junk.
You should be asking yourself two questions every time you see a press release:
1. How will this news effect the company?
2. How do I believe people will react to this news?
Both questions are equally important. For example, a company may release news that they sold 1000 cases of their product to a recognized brand like Circle K. You do your research and learn that this company’s profit margin is terrible and this sale will likely be a one-time transaction. You just answered the first question. Now, proceeding to the second one. How do you think people will react when they find out a small penny stock company landed a deal with a brand like Circle K? Less diligent investors may get excited and purchase shares. You can usually determine the reaction to news based on price action and volume. Just make sure to ask and answer both questions.
Let’s break news down even further now. We have a few categories of news that I think are important enough to discuss.
Good vs. Bad – This one is simple. Is the news good or bad? A company may report a toxic financing deal or bad earnings. This is bad news and you can expect the stock to go down. Contrarily, a company may report an impressive new contract or good earnings. This is good news, and you can expect the stock to go up. It’s as simple as that.
“Fluff” vs. Important News – Not all news is really “news.” Some companies just release news to keep people focused on their stock, or simply because they don’t know any better. By asking the question “How will this news effect the company?” you can filter fluff news from important news.
Expected vs. Unexpected News – You’ve probably heard the expression “buy the rumor, sell the news.” A lot of people buy a stock in anticipation of expected news. This means that the news has already been factored into a stock price. In these cases, a stock may go down on good news as traders collect their profits.
Understanding how news will affect a stock price is not a science. You are not dealing with just the news; you are dealing with the mass reaction to the news. It still baffles me when I see certain press releases that move a stock’s price. You won’t be able to catch every move – focus on the best ones. Additionally, I will rarely trade solely based off of news and don’t recommend it. News is just a catalyst that brings attention to a stock. Once you find news that catches your eye, you should still apply your regular trading strategy to the trade (technical analysis, fundamental analysis, etc.)
Be on the look out for Part 2 of this series tomorrow: How to Find Stocks with Equity Feed.