In this lesson, you will learn what a stock catalyst is, why it’s so important to your stock trading, and how to find stock catalysts.
What Is A Stock Catalyst
A stock catalyst is an engine that will drive your stock either up or down. A catalyst could be news of a new contract, SEC filings, earnings and revenue beats, merger and acquisitions, buyout and takeover rumors, FDA approvals, analyst upgrade, a new law that opens up a new market, a new discovery, a huge options sweep, large dark pool activity, world events, and more.
Why Finding a Stock Catalyst Is Important
Becoming a stock catalyst finder is crucial to your success as a stock trader and investor. In fact, there is no other as important skill that you need to develop in order to survive on Wall Street.
All technical analysis comes from stock catalysts first. Find a stock catalyst, and you’ll find a stock before the technicals even show it in an uptrend.
Stock Catalyst Finder
Humans are the best at finding stock catalysts but A.I. algorithms are catching up. The reason that humans are better at determining catalysts than A.I. is that we are aware and understand context. A.I. is not aware and is nothing more than a machine processing If/Then statements. While A.I. is much faster than humans, it’s not more accurate. For example, during the coronavirus outbreak of 2020, A.I. algorithms were programmed to initiate sell orders on the amount of “coronavirus” headlines so that the A.I. programming logic was:
If MainStreamMediaMentions of “coronavirus” is > 50 and is in < 16 hours Then SellStocks
You probably see the big problem with such algo programming: what if the story is that a cure for the coronavirus has been found?
If you are an active day trader, you have probably seen this happen many times where the market sells off on good news, but then a few minutes later corrects to the context of the news and then it moves higher. That is because the humans that oversee the algos stepped in to tell the algos that the news is good and therefore has a positive bias, not a negative one.
The best stock catalyst finder software monitors the algos but then also shows a human the catalyst to take action if it’s a positive or negative bias. Here is the tool I use to do just that.
Let’s break down this busy screen so that you understand what’s going on.
Finding the Catalyst By Monitoring Algos
In the top left corner you will see a chart where the software identified A.I. algos moving a stock higher:
In the U.S., more than 70% of trading volume is generated through algorithmic trading. At 7:20 AM, our catalyst finding software detected algos moving a stock higher and it alerted us on the chart and in the alert log:
Notice that the TOCA algo alert is colored purple. The purple color indicates that it is a Volume Active Alert. This alert only occurs after the market opens, and is triggered when a stock is experiencing an unusual increase in volume.
We also can monitor what the stock is doing after algorithmic buying (or selling) was detected by looking in the lower left corner at the Top 10 Gainers list:
Sometimes algos buy a stock, but the buying is not enough to sustain an uptrend and so the stock does not stay on the Top 10 Gainers list. That means that, while algos bought a stock, the stock did not have a good enough catalyst to sustain the buying and to keep it on the Top 10 Gainers list. Remember, the longer a stock stays on the Top 10 Gainers list, the stronger and better the catalyst is.
Where To Look To Find Catalysts For A Stock
The final and most important step in finding catalysts for a stock is to monitor all the major news sites. Notice the right side of the screen in our stock catalyst finder software:
By clicking on the algo alert, the stock catalyst finder software displays all the news from all major news sources, for that ticker that was clicked on.
In seconds you can see that in after-hours trading on the previous day, February 19, 2020 at 16:13 hours, the company released over PR Newswire that it was merging with Forte. Next, on February 20, 2020 at 01:24 (before pre-market trading), TheFly posted that the company will have a conference call at 8:30 AM to discuss the merger. The catalyst that powered TOCA stock higher was a merger with Forte.
Stock Catalyst Finder Software
A few years ago, stock catalyst research was time consuming and it cost a lot of money. Traders had to rely on multiple sources to research stocks. They had their stock screener to track big movements in real-time, then they jumped over to their news service websites to try and figure out why a stock moved higher and what the catalyst was. That’s no longer necessary.
With the stock catalyst software shown above, traders can simply look at one screen that combines all of these elements into one easy-to-use software program that resides in the cloud.
That means you can monitor algos, look at charts, track level II quotes, follow large options sweep orders, monitor dark pool trades, and watch for news catalysts all from one screen.
BlackBox is my favorite tool to use and I think it will be yours too and if you sign up through me, I will help you with any questions you have about using the software. After you sign up, just send an email from the Contact form if you have any questions.