Lesson #8 – Advanced Strategies for Supersized Profits
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Subscriber, Lesson #8 – Advanced Trading Strategies
Normal false EN-AU MicrosoftInternetExplorer4 Normal false EN-AU MicrosoftInternetExplorer4 Normal false EN-AU MicrosoftInternetExplorer4 /* Style Definitions */ /* Style Definitions */ /* Style Definitions */ Normal false EN-AU MicrosoftInternetExplorer4 Normal false EN-AU MicrosoftInternetExplorer4 Normal false EN-AU MicrosoftInternetExplorer4 Trading and investing using basic fundamental and technical analysis can be extremely profitable in itself, but sometimes to get truly spectacular gains, we need more advanced strategies.
Below is a selection of strategies that will help you supercharge your portfolio.
Playing the Gaps
A gap up occurs when a stock opens higher than the previous day’s close. A gap down is the opposite, opening lower. This happens because of pre-market and after-hours trading, which is not reflected in the daily stock chart.
Trading outside of regular hours can be extremely dangerous, and many stocks such as those listed on OTC and Pink Sheets generally do not allow it. We therefore do not recommend this. However, because stocks can sometimes make extreme moves outside regular market hours, there is often an opportunity to profit by reacting to the moves when the market opens.
For example, stocks that gap up big, often sell off as soon as the market opens. This gives us an opportunity to buy "on the dip", and look for the stock to re-test it’s pre-market highs. Alternatively, a stock may gap down big, and the market see’s this as an overreaction and buys the stock at these low level. Either way, it is likely the stock will move significantly in either direction.
Bounce Plays
Emotion is usually the biggest factor determining a stocks price direction and velocity of that direction. Sometimes we can see a stock rise or fall 50-60%, even 100%+ in a matter of hours.
Greed and fear drive traders and investors. When a stock is in free-fall, holders of the stock are dumping at any price they can get a fill, all because of fear. Often times, the selling is a gross overreaction to the reality. And to make matters worse, short sellers are also getting in on the act, further destroying the share price.
Knowing that buyers will eventually come in, and short sellers will have to cover (buying shares back they borrowed to short sell), this gives us an opportunity to buy at a substantial discount.
Buying the bounce can be stressful as it is often difficult to time the bounce perfectly, however with a strategy of "scaling in" to a position buying small amounts at various levels will help to minimize the risk.
It is not uncommon to see a stock bounce 50% of its initial fall, sometimes the stock can bounce and recover all of its losses, and even go positive.
Sympathy Plays
When the market is buoyant, these plays are often the easiest to profit from. Essentially, sympathy plays are when you buy a stock that is similar, and in the same sector, to a stock that is running higher. For example, ABC Co announces a new multi-million contract or releases positive earnings. Traders who missed the chance to buy ABC Co will search for a similarly priced stock, in the same industry/sector, to buy in the expectations that the positive news will be reflected in other similar stocks. A simple scan can help identify other similar stocks within the same sector.
One real-life example are rare earth mineral company’s. A couple of years ago, rare earth minerals were all the rage. When a rare earth mining company announced positive news, every stock, even remotely related to the sector, shot higher.
Sympathy plays can apply to any sector such as biotechs and banks, as well as company’s in bankruptcy (identified with a Q at the end of the ticker).
Exchange De-listings
These plays are a little more speculative, but can provide equally impressive gains. When a company listed on an exchange, such as the NYSE or NASDAQ, they are required to meet certain obligations such as a minimum share price, or minimum market capitalization. If they fail to meet this requirement, they have a short period of time to comply, otherwise they will be demoted to a smaller exchange.
In an attempt to get their share price or market cap higher, the company will often issue a series of press releases with positive news on the company. The news creates excitement and hype, and often substantial buying comes in, causing rapid and dramatic share price increases.
You can profit from these situations by being aware of the companies that are at risk of being delisted. You can access this information from the relevant stock exchange websites, such as nasdaq.com or nyse.com
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