If you are like me, you have a bit of a gambling streak in you. In trading stocks and options, the gambling mentality must be controlled, but I occassionally enjoy taking a portion of my profits and putting them on trades that have high risk, but high reward. It helps keep things fun and exciting. Please don’t place the types of trades that I will discuss if you are struggling to make profits in your trading account.
Lets take a look at the stocks above $10 that have fallen by more than 30% in the past month. Below is a list.
AMLN
CBI
CHDX
CYBX
FSIN
IACID
MDR
PERY
TWI
So want am I looking for? Well…this requires some good fundamental analysis and an understanding of why the stock has fallen so dramatically. Take a look at a chart and find the date that the stock made a big move down. There is normally news associated with that move. With a bit of digging, you can understand the catalyst that sent the stock down.
Once the catalyst is understood, I look for 2 things.
1. Is the catalyst going to reverse? ie…say the stock is down big due to low oil prices; will those prices reverse. A revesal of the catalyst often signals a reversal in the stock.
2. Are the insiders buying? When company executive start buying large quatities of their own stock, that tends to signal that they feel a reversal in the catalyst is coming. Being on their side of an investment is generally very rewarding.
When these thing occur, I take a close look at my charts and look for reversal signals. Chart and Candlestick patterns are generally quicker signals than technical indicators. If insiders are not buying and the negative catalyst persists, profitable put plays can had by selling any rally.
Happy Trades,
Jeff Yaede
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