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It's earnings' season, and stocks are getting hammered on a daily basis. I've been trying to devise a stategy on how to profit on this situation, and believe that it can be one of the safest ways to profit in the market on a day trade basis, but you have to be very careful. This strategy takes time and requires real time graphs or at least real time quotes and most likely focuses on NASDAQ listed companies. Hopefully this thread will speed up the determination of which stocks fit the trading criteria to allow ample time to identify companies which can produce a quick 10% gain. My stategy is as follows: Part 1: 1. Price Drop --- I'm only looking at companies down 30% for the day, reasoning that the further the drop, the more likely it will be overdone at some point in the day, the more likely that people will get stopped out exacerbating the selling and providing an opportunity to trade. 2. Liquidity ---- This is the most important factor, IMO, as movement in the stock is much more predictable. I want a stock that is trading at least 100k shares in the first hour of trading and averages over 100k a day in trades. 3. Spread ---- I want a spread of no more than 1/8, reason is obvious, and is directly tied to #2. 4. Valuation --- after a stock meets the top 3 criteria, I want to determine how good the valuation model looks, is the stock even overpriced after todays drop, are there analysts following the stock w/ forecasts, what's the book, PE, past performance, trading below cash?! etc. 5. News --- What is the news? Is it a 1 quarter problem. If earnings related, is there a history of disappointments. If it is a useless drug, are there other drugs in the pipeline. 6. Awareness of Company --- Needless to say, if I need all this information, many times I'll have a hard time finding it in a timely fashion to day trade the stock, so we might miss several, but there are plenty of opportunities using this pricinpal, so patience is needed. 7. Stock price --- I'm looking at stocks between $8 - $40 per share and market cap's in excess of $50MM, these valuations being BEFORE the current day's price drop. Part 2: After we determine that a company fits the criteria, we can begin to monitor the pricing activity. Has the stock already bounced? Is it trading fairly level? After I determine the price action, I wait for the stock to bounce after a spike down, usually about 3/8 of a point and then pounce. After buying, I continue to carefully monitor the price action, if the stock drops 1/2, quickly dump and nurse your wounds. If the stock rises 1 point and levels, more than likely I'm out w/ stocks below $20, 2 points for stocks above $30, again waiting for pricing to level or tick down 1/4, in any event, I do not want to hold the stock overnight, or for that matter, no usually more than a few hours, many times will be less than 1 hour. Here are some sites which will assist in identifying trading situations: NASDAQ losers: quote.yahoo.com DBC intra-day news: dbc.com Dow Jones Newswire (subscription needed) smartmoney.com Bloomberg News (subscription needed) bloomberg.com Briefing.com (subscription needed, sort of <g>) briefing.com Quotes Via online broker (optional choice - account needed) Profiles, SEC filings, Analyst Coverage, etc. quote.yahoo.com Any additional insights or secrets using this method are welcome. Although we are out of the peak of 'warning season' I'm sure we'll have plenty of opportunities to deploy this strategy. jc | ||||||||||||
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