Stock prices move for a myriad of reasons, and as traders, we want to know why. This is the wrong question to ask, because why stock prices move doesn’t matter.
You might feel more confident about placing a trade if you understand the logic behind the price move, but often, there is no logic. While there are a million reasons to sell, there is only ONE reason to buy – a stock is going up. “Buy 100 shares, because the company did a deal with Microsoft, and it’s going up like crazy.”
Stop asking why stock prices move
If you insist on asking why, there could be tremendous lag time between gathering information and processing it to make a decision. Your trade may be gone by the time you understand the logic. If you see money flowing toward a stock, you know there is demand. Prices can rise when the demand is strong – a basic economic principle you already know.
Ask how instead
The operative question to ask is HOW to find the right stock. This isn’t easy. It’s takes practice. Technical analysis tools that will allow you to “read” a chart are key and will make your trading life quite a bit easier. I rely on technical analysis, because it takes the emotion out of trading decisions. Charts are objective. What you see is what you get. I’m a reactionary trader, which means I wait to see a change in trend before jumping on board. Technical analysis makes this possible.
Recently, the charts of AirBnB (ABNB) and DoorDash (DASH) brought in some great returns for our Explosive Options portfolio. These stocks started to turn up in January, but it was the followthrough that got me interested in joining the party. I didn’t ask why. These stock prices were moving higher, and that’s all that mattered. We banked huge wins on both trades.
In the end, if you think less about why stock prices move and more about how to find those stocks, opportunities to trade and grow your portfolio will open up.