March 31, 2007
How to win an Investment Challenge
When it comes to winning an investment challenge, fundamentals or even knowing what the company does is important. Its about finding the most volatile companies and accurately predicting (and with a bit of luck) where when the stock has been overbought or oversold and when it has bottomed or topped.
In this entry I will discuss a strategy that I often use to trade in my portfolio. When using this type of strategy, which I call Volatility Trading your trading day should begin by looking at the daily gainers and daily losers of the NASDAQ. The reason you should look at stock who trade in the NASDAQ is because these companies are usually microcaps technology stocks. Not many traders now of these companies and even less analyst have recommendations on these stocks.
In the Daily Gainers and Daily losers part of Yahoo Finance look for companies with around 100,000 in daily volume. The most important thing to check if these companies had news that day or three days before. If there is now news on the company look at its competitors or if theres any news on the environment that these companies are operating in. For example, you dont want to long a stock that operates in Iran or short a stock that operates in an industry where major consolidation is going on.
This strategy is incredibly risky, its definetly not for the faint of heart or those who are looking to have steady flow of income from their investments. Volatility Trading should only be used by young and agile investors who don't have much to lose and have years to regain the possible loses that can happen by using this strategy. With that said, you can make a lot of money using volatility trading. I returned 42% last year with this strategy. There might be a day where your stock goes 60% the opposite way but then theres a day where you just hit it out of the ball park and make 100%, 200% in a couple of hours. Theres money to be made, all you need is a lot of practice in finding these stocks and a little bit of luck. Happy trading.