How to Look for the Catalyst

How to Look for the Catalyst

I try to get into the office by 7, 7:30. I go through the morning newspapers, I read Investor's Business Daily. I go through various websites providing me with financial news and information. Basically what I am looking for is a catalyst, something that's going to get a stock in play and bring the volume to it to reaffirm the move. It could be an earnings release; it could be FDA approval on a drug.

The types of trades that I am looking for are what I consider to be high probably trades. So let's say, for example, the market is in an uptrend and I am looking for bullish type patterns. I'll identify some cup-with-handle patterns. I will identify cup-without-handle patterns, double bottoms or just some type of consolidations. Let's say we are in a bullish market, a stock has created what looks like a cup-with-handle pattern. I will be looking to purchase that stock when it starts to break above the handle. If I am looking to be a little more aggressive, I might look for a stock that is creating the handle and look for a break of the descending channel, creating that handle.

With the help of the software that I have here, I am able to identify volume spikes or stocks that are showing relative strength or relative weakness with relation to the stock market. Then I will look to enter my positions or enter a trade. At the end of a trading day, I will print out all the charts on the various stocks that I was looking at and trading during the course of the day. I will review my things with some of the guys here and will talk about our entry points, our exit points, what we could have done better, where we may have left some money on the table, what we could have done to prevent losses we may have taken during the course of the day.

In the end what I do is, I go through a lot of charts. I think that one of the most important things about being a trader is doing your homework. If you know beforehand where you are going to get into a trade and where you are going to get out of the trade, that will allow you to make the best and clearest decisions.


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