When investing from a low level profile, every penny as a loss is a loss that bites. Even when you know a potential ticker will go up, seeing it in the red is bothersome. Needless to say, when you expect or know there is a potential news coming up - there is something to keep in mind. It absolutely does not matter whether the news is good or not. You buy the potential, sell the hype-before-news. The market acts in a very emotional way. People expect good news to come out and buy in, but there are two sides to that coin. The news can be either very good, or very bad. Let's put that into perspective:
We will take a pharmaceutical company who has an upcoming drug review. We can use various resources to see that and you can find them listed at the bottom of this post. However, a couple of days prior to this said 'news', you join the flock in loading the stock that is trading at, let's say, $1.00 per share. You expect the shares to skyrocket to $4-5 per share and have put in $100 - which is a lot of money for you. So you are out of $100 and are at the mercy of this news.
Scene 1: The drug gets approved - the stock jumps to $6 per share... you try to sell, and get $5.90 as sell price but you don't care, you just got 5x you investment back.
Scene 2: The drug does not get approved BUT it hit about $1.15, and the stock has now crashed to $0.80 per share, you try to sell and it sells for $0.75 per share, you just lost 1/4th of your investment.
I have personally been in both of these scenarios and it ain't pretty. You feel powerless, curse the stock market gods, however, you don't focus on the issue.
I would like to give two examples that might have some people cringe but I honestly did this to learn. Recently, a COVID-19 stock by the name of OCGN took one of SpaceX's starship and left this galaxy. Please view the following images to see why:
OCGN BUY:
OCGN SELL:
As you can see, OCGN was trading at $0.28 at one point and I actually invested in it to hold - but then decided to do some in-depth research and at the time of the trade, did not see any pointers that lead to them working on any type of projects for COVID-19 vaccines - especially in India. Like if I had just read about India and OCGN in the same Google Search results or any type of article, rumor, or news, I would have dumped a lot more than $60 into this stock. Alas, I am content with my decision to make that LARGE 2 cent profit. Talk about gains.
My point in sharing the two images is quite simple... DO NOT invest into stocks that you feel iffy about. With that said, let's look at the second example:
AMD BUY:
AMD SELL:
I actually want you to erase whatever you are thinking and think the following thought. As you can see, I injected about $552 dollars into AMD for 6, and I sold it a couple of weeks later for a $2 increase in the shares. Why? These were the easiest $12 I ever made in my entire life. Like I can't remember the last time I made money with so little effort - even as a child. Here is how I did it.
Whenever trading, you must use LIMITS in order to buy and sell a ticker. You have the option to buy it at MARKET PRICE, but doing so, at least on Robinhood, leads to getting shares at Market Price + 5%. At the beginning of my own experience, I used to use market price to buy and sell. Gosh, what an idiot I was, but not making them mistakes, and more importantly, not realizing said mistakes would have led me to greater loss and honestly, I would have walked away from investing overall. So why use LIMIT prices?
The answer is clear, LIMITS give you more control over your future asset. If you want to purchase a certain security at a certain price, you can use the LIMIT feature to set a BUY LIMIT, and at the same time, once your order as filled, you can use the same LIMIT to sell as LIMIT SELL. The beautiful part about the purchase is that if you are monitoring a stock to decide an entry and see it fluctuating, you can ask the trading software at your broker to buy it when it hits a lower point than the high you see. Consider the following:
Ticker ABC is trading at $0.95 and you see that it goes down to $0.85 to $0.87, you want your entry to be at or around $0.87 or $0.88, so you would set a LIMIT BUY at $0.87 for 100 shares, this requires $87 and once you set your limit, it gets bought. You then want a roughly 12% return, and it equates to $0.97 per share, your order gets filled if the price goes up and you made 12% or around $10 on your $87 for a total of $97 dollars.
As you can see, having an exit strategy, is extremely important. However, this was one point from the AMD trade above. Another point is that the more money you throw into a trade, the more money you can make or lose.
In conclusion, it is extremely important to know the following:
- Information about the history of the stock. Why it's price have fluctuated (if they have).
- What kind of business industry it is in (does it have good potential to make revenue)
- What kind of expected news (or PR - Press Release) it has coming up.
- If it is a pharmaceutical company, does it have any upcoming FDA dates?
- Most importantly, if you have decided to jump in on the stock, what is your entry price?
- Most most importantly, if you have purchased the shares, how much are you willing to lose and how much are you willing to make? You'd use a STOP LIMIT SELL... in this case, you set a STOP ORDER PRICE and then SELL LIMIT. Think about it like a fail safe, and your best friend in a volatile market or stock.
I hope this post was helpful to some, and if it was, please leave a comment below. If you have any questions, please also let me know about those, or come join us at https://reddit.com/r/EducatedInvesting.
Good luck!
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