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What is a Catalyst For a Particular Trade or Investment?

June 7, 2017 By Matt Thomas 1 Comment


A Catalyst is an Underlying Story, Upcoming Event, or Some Other Reason For a Stock to Move:

When it comes to researching potential trades and investments, individuals typically focus on at least one of three categories – technical analysis, fundamental analysis, and catalysts. Short-term traders tend to emphasize technical analysis and long-term traders tend to emphasize fundamental analysis. But one of the best indicators of a substantial move in a stock’s price, in my opinion, is a strong catalyst (no matter what the technicals and fundamentals may show). Of course, the more criteria that lines up the better. But a strong catalyst can have an impact on a stock’s future price action like no chart or financial ratio can.

For example, there’s a particular penny stock called Liquidmetal Technologies, Inc. (Ticker: LQMT) that always seems to spike 25-100% on rumors that their technology will be used within the Apple iPhone. Even though the fundamentals of the company are poor (it’s a penny stock for a reason) and the technicals may not necessarily warrant an entry, short-term traders attempt to position themselves within this stock as the launch date of new iPhones approach. It’s the story that drives the stock higher and not much else – the potential that Apple will use Liquidmetal’s technology in every single iPhone. That kind of exposure is huge for a small company like LQMT. Overall, a strong catalyst can bring in a substantial amount of volume and change sentiment in a given stock. It’s important to realize that actual success isn’t the only reason for a stock to move – hype can have a significant impact on a security’s price as well.

Related Post: What’s the Trading “Fantasy Gap”?

Filed Under: The Daily Dose: Questions For Stock Traders

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Comments

  1. John says

    July 3, 2017 at 5:49 am

    Making money in stocks is real. It is mostly positioning that matters. There are lot of money going for penny stocks most especially when the fundamental is right and the entry level is great. I love doing short term on penny stocks. With proper investigation of the company one can ride on the news and rumor to make a lot of margins on penny stocks.

    Cheers,
    John

    Reply

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