Guide to Day Trading Strategies

The Hunt for a Catalyst
Every morning starts the same way for me. I look at the stocks trading on heavy volume in the 
pre-market session. This is often an indicator of early retail interest that will carry over into the 
trading day. I review each of the stocks trading on high volume to see if there is a catalyst. A 
biotech or pharmaceutical stock that has just released results from a clinical study could be 
interesting, or a stock that just reported a big earnings release would be worth watching. I don’t 
put a tremendous amount of energy into researching the catalyst beyond con
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rming there is 
a reason that the stock is moving up or down. Even the best news releases sometimes result in 
poor price action, so I remind myself to always follow the chart and not the fundamentals of 
the catalyst. Investors focus on fundamentals, but traders focus on chart patterns and technical 
analysis. We have to remember that we are traders and keep our attention on the chart patterns 
at all times.
When I’m reviewing pre-market leaders, it is important to check for buy outs. When a stock has 
been bought out overnight it will trade the next morning at the new price, and typically there 
will be a huge amount of volume as people buy and sell shares they have been holding. The 
problem is that since the stock has been bought out, the value of the stock has been determined. 
If a buyout is priced at 4.00 for example, the stock will trade almost exactly at 4.00 all day long. 
There is no reason to short the stock or buy the stock knowing the value of the company has 
become 
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xed at 4.00. The reason these stocks trade on high relative volume is because long term 
investors sell their positions at the buyout price. Anytime we see a buy out on the gap scanner 
we disregard it and move on to the next stock.

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