There are thousands of listed public companies which traders can comfortably trade with. In a past article, I explained some of my reservations for long-term value investing. This is a strategy where a person buys a stake in a company and then goes ahead to own the shares for many years. He will make money if the share price moves up and when the company declares dividends. Many investors such as Warren Buffet, Carl Icahn and Dan Loeb have made billions of dollars using this strategy. Today, Warren is viewed as the best investor in the 21st century. Why would I not advocate for such a strategy that has made these people billionaires? The answer is that Warren and his group control billions of dollars. Therefore, if he buys a stake in a company, he will have the eyes of the management. He is also capable of influencing major decisions in the board. For a small person like you with less than $100,000, you will not be able to achieve this. Mark Cuban has in the past said that diversifying is for idiots. I slightly agree. In this article, I will explain a few key ways on how to day trade stocks and how to screen companies.
As a day trader, your main intention is to open a trade and then close it after a few hours or minutes with a profit. Your intention is not to own a company for years. Therefore, you want to find out the key market noisemakers that are likely to cause movements in the stock. Media interviews are a source of key information that will likely move the stock. For instance, if Tim Cook appears on Bloomberg TV and makes a comment on their next product, chances are that investors will likely put more money to the company leading to a higher trade. If on the other hand he emerges with a bearish outlook for the company, investors will likely short the stock leading to a lower price. As a trader, you should have the information about the key people who are to appear on TV on that day. Luckily, stations such as Bloomberg and CNBC provide this information in advance. In addition, you should consider subscribing to the major newspapers such as Wall Street Journal and Financial Times. This will help you get information as early as possible and then making the relevant trade.
While this is relatively similar to what I have explained above, there is a slight difference. The CEO or any other senior executives are not the only sources of information/news. For instance, a few weeks ago news came in that Dow Chemicals would be merging with DuPont. This became the biggest news of the day as a result of the size of the merger deal. As a result, the market reacted by moving the price of the two companies higher. For a trader, this would be the ideal situation. There is a lot of news out there and if only you can spend time reading and watching them, chances are that you will make a lot of money.
The market is interrelated. This means that what happens in one asset class will definitely affect other asset classes. For instance, if the price of oil suddenly shoots from $30 a barrel to $40, this means that downstream oil companies such as Chevron will make more money. This will lead to a higher stock price of these companies. In the same way, if Intel which sells chips to hardware companies reports increased earnings, it means that hardware companies such as HP have increased their sales. This will push these prices higher.
Last but not least, the earnings calendar is very important especially for day traders. If a company reports weak sales, chances are that its stock price will be hammered. Related companies are also likely to fall. In addition to this, if a company reports strong sales that beat the analysts’ estimates and surpass the previous year’s earnings, chances are that the company’s shares will rise.