While occasionally presented as a mysterious world in which only the select few can prosper, in truth, stock trading is pretty simple. You just buy stocks at a lower price than what you eventually sell them for.
Of course, the actual mechanics of stock trading are more complex than that, but a simple equation of finding undervalued stocks and acting on buy-triggers – later selling at an increased price – is all there is to make a profit.
But locating those triggers and signals is the tricky part.
As we know, the value of a stock or the providence of a forex currency pair will be dictated by a myriad of factors, and these macro conditions – be it economic, political, or industry-specific – will go a long way in determining their perceived value. Even stocks like Amazon, which seem ‘bulletproof,’ are impacted by external factors.
So where do we find these buy/sell triggers?
News of the World
If you want to be a successful stock trader, you simply have to keep up to date with the latest news all over the globe – this is not up for debate.
You might not see how an oil crisis in the Gulf or a political coup in Mexico can impact your stockholding in NASDAQ listed companies, but the reality is that the global supply chain – and consumer confidence – can be shaken by circumstances that seem wholly unrelated to your holdings.
Following the news is one thing but reacting to it more quickly than other traders is absolutely paramount. Take the pandemic, for example. It’s been nothing but an unmitigated disaster for most, and when the news of death rates and lockdowns was revealed, many of us sat open-mouthed staring at the TV.
Traders had already gotten to work. They knew that people would be working from home and spending more time on the sofa, and they knew that visits to see loved ones would be off the agenda for a while. The upshot? The value of the likes of Zoom, Netflix, and Microsoft (via Teams) skyrocketed. Positions in the leisure industry and financial sector were closed, and so quick-thinking investors were able to maximize their returns even in the most diabolical of circumstances.
So, it’s not just following the news, it’s reacting to it in inventive ways and even pre-empting it where possible.
Of course, you will probably know about all of the main worldwide news providers already but widen your search. Social media is an excellent platform for instant news these days, while investment professionals, brokers, and review sites like Ask Traders can also be utilized for staying one step ahead of the game.
Keep it social
Think about all of the processes the traditional news story goes through – an appreciation of the story comes first, then the seeking of context quotes and interviews, writing up the piece, possibly some form of editorial checks, and then publishing.
But with social media, news stories develop instantly and fluidly, with the latest developments reported without much of the red tape that follows traditional media networks.
It’s hard to think of a more immediate news publisher than Twitter these days, and while some of the information you read on the social media platform should be treated with a giant pinch of salt, often the facts reveal themselves so much quicker there than in typical broadcasting.
The hashtags on Twitter are also an excellent barometer for gauging public sentiment, and that offers plenty of clues as to how badly – if at all – stock might be impacted by a specific event or happening.
Following key industry figures on Twitter is a must. Take somebody like Elon Musk, for example. Every time he tweets, the universe tends to listen – watch how Tesla shares get a pump in price whenever he reveals an exciting update about his firm.
Dates for the diary
It’s a tale as old as time – company earnings reports will dictate short-term stock values. That’s a fact.
But if you wait for a report to be published, the chances are that you will be too late to really harness the true value of a shift either positively or negatively in sentiment for a stock.
So, you will need to keep abreast of all the latest developments heading into earnings season and try to proactively buy or short stocks where you believe a good/bad earnings report is incoming.
And don’t be afraid to trade based on public overreactions. From time to time, all businesses have bad quarters for a variety of reasons, but if the long-term picture is positive, then buying on a post-earnings dip is as wise a strategy as they come.
News, social media, earnings reports. If you can maximize the usability of these three pillars, your trading will improve exponentially.