One of the biggest myths on Wall Street is the idea of missing a trade.
When a stock rises too high too fast, you think you missed the trade.
Wall Street tells you these stocks are like runaway trains set to crash. You’re told to not chase them.
Timing the market is always a challenge. How do you know whether a rise is a runaway train or just part of a larger trend?
The reality is, there’s an opportunity to profit from stocks no matter how high or low they go — and no matter how quickly.
You just need a sound strategy to help you spot those potential trades.
That’s why I developed my own “Profit Trigger,” a unique indicator to tell me how to trade a stock.
It’s key for any successful strategy.
There has to be that trigger … something that tells me it’s time to enter a trade.
Your gut just doesn’t cut it when we’re talking about uncertainty like this. It’s not that you can’t find some winners by getting lucky, but over time, your gut won’t help you grow your account.
But a Profit Trigger can … as long as you find the right one.
Here’s how mine works.
Capitalizing on 1 Key Event
Now, a Profit Trigger can be anything.
From a momentum indicator, to a proprietary system or to simple trend lines. But it has to be something you can scan for, test and make profitable trades from.
Just because you find a momentum indicator that you like and it has generated a profitable trade doesn’t mean it can do that on a consistent basis.
I’ve spent years to narrow mine down to a unique mispricing opportunity that comes up as often as four times a year for each stock.
I studied, tested and analyzed the ins and outs of this one event — an earnings report.
And I found that it was a huge momentum event for stocks.
Even though a stock soars 5%, 10% or even 20% the day of this key event, it doesn’t mean you’ve missed the trade.
As a matter of fact, these exact moves are what I use to determine if a stock has hit my Profit Trigger or not.
I look for the stock to jump 5% or more. This tells me that investors are buying in.
But I also like to see the earnings on the stock come in at least 5% better than what analysts were expecting.
Combined, this is my Profit Trigger — a 5% or greater jump in the stock and a 5% or better earnings than what analysts expected.
And what can occur over the following weeks is a rising share price for the stock.
The earnings announcement is when the company releases a trove of new information. That’s information that analysts spend countless hours combing through .
As they adjust their price targets for the company in the following weeks, it creates a positive feedback loop where more investors buy into the stock. This is what helps create the rally we see following the earnings announcement.
That’s the period we want to capitalize on.
Making a String of Profitable Trades
But I didn’t stop there.
Once I found the significance of this event, my Profit Trigger, I analyzed each company in the S&P 500 Index since 2006 to make sure each stock followed this pattern.
It turned out it worked better for some companies than others.
I walked away with around 75 stocks that, when they hit my Profit Trigger, continued to climb almost like clockwork.
That’s the shortlist I use for my premium Quick Hit Profits service. When one of those stocks hits my Profit Trigger, I know it’s time to jump in.
With four potential trades on each stock every year, there are plenty of opportunities to profit .
This has led me to many profitable trade.
Sure, we lose on some trades. No trading strategy is perfect. But, as time went on, it continued to be profitable by trading options on these mispricing opportunities.
We’ve covered a lot in these lessons. But it’s about to get a lot more fun as we dive into deeper concepts and have actionable insights — where we can apply what we’ve learned about options.
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Chad Shoop, CMT
Editor, Quick Hit Profits