Never Miss Out on a Rising Cheap Stock

There’s no better feeling than finding a stock way before it takes off and still owning it when it finally blossoms. While this is the dream, you cannot always be there for the initial run. What often happens is that you see the run and then you must decide; do you hop on the train or do you stay back and avoid the nosedive? If I do enter, when do I get out? There are many beliefs on how to approach these questions that pop up time and time again when dealing with stocks under $5 for say, but I have some of my own beliefs.

  1. Always read the recent news of any stock before investing in it. This rule stands for stocks that you plan to only hold for a couple days or weeks, knowing the reason why the stock is moving is essential, especially in knowing when to get out of stock, barring the severity of the news. If a stock is rising but doesn’t have any news to go with the rise, don’t trust it. It will most likely go down before you can even smell a considerable profit. However, if a stock has recent news such as a merger agreement, an earnings estimate beat, a new product, or an acquisition announcement, it can be poised to run considerably. This is the type of news you typically see when a company rises 80, 90, or 100% in one day.
  2. Have a plan for what type of profit you expect from each trade. Once you get in and a stock gets moving, it can be hard to get out at an appropriate time without thinking what if? Based off the news the stock is running with, you have to gauge how long the news will last in investors, plus how the stock has performed since the news broke out. News about a merger between two small companies usually gets hot right away, but after two days, the run is usually over unless they have a product or deal releasing in the near future. News of a new product tends to usually boost a stock right away but usually keeps gradually rising even after a few days of the product announcement. Be aware of what level you expect the stock to reach at what point in the trading session to understand when you would consider exiting. As a wise man once said, “No man has ever lost a dollar when taking profit.”
  3. Know the past highs of the stock. When a stock reaches a certain level that it has constantly tested and has a positive press release, the opportunity for a huge boom is imminent. For example, if company XYZ is sitting at $6.95 and has touched $7 four times already in 2020 but always drops after, but announces that they beat their earnings estimation by 50%, a surge could happen right away. A positive press release can easily push it past its hump of $7, and when investors sees something break an all-time high, they tend to jump on the train. These scenarios are when I most often see low capital stocks achieve the 130-200% jumps in one day.

To find cheap stocks rising with good news, I look at the top % gainers list on E*Trade everyday. Although, by simply searching, “top stock movers today” you can find the same list on sites such as Tradingview or Marketwatch. These sites usually have links to the news articles under the charts for the stocks, or you can type the ticker into Google.

-Darnel Shillingford

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