After a big gainer like Kala Pharmaceuticals, Inc. (NASDAQ: KALA) on Wednesday, there was an obvious theme to look for yesterday…
I’m not talking about afternoons again — although I still believe that’s the best time to trade and I’ll show you why in a minute…
But I’m talking about looking for the obvious theme that can lead to the next big runner.
Yes, traders look for big percent gainers every day…
So I’m sure you saw this ticker yesterday…
But it’s not a coincidence it was one of the biggest premarket spikers. Here’s why…
How To Find Potential Trades More Easily
First, let’s dissect KALA….
What made it run and why did it go so crazy?
KALA is a biotech stock. Stocks in this sector can go crazy when companies release news.
And on Tuesday, KALA had news that the FDA accepted the company’s investigational new drug application for its ocular disease treatment.
KALA is also a low float. It only has about 1.4 million shares available to be traded. And the volume on Wednesday was over 51 million shares traded.
That’s an insane amount of float rotation. And a low float stock with news and float rotation is exactly what we like to see for a potentially huge runner.
So all eyes were on KALA yesterday morning for a follow up move…
But after a big run and a gap up like KALA had, you can expect to see some profit-taking and pressure from short sellers.
That’s why I said during my Facebook live session on Wednesday night that KALA was a watch for a dip and rip or a weak open red-to-green move the next morning.
(I go live on Facebook every Wednesday evening. Request to join our Facebook group for free here. Just answer all the membership questions to get approved.)
But you’re not just limited to trading the same stocks again…
Finding other potential trades can be easier after a big runner like KALA.
Because everyone starts looking for the next runner…
How do you know what it could be?
You look for a stock with the same characteristics as KALA.
A biotech stock with news, a low float, trading high volume with float rotation.
Our Breaking News Chat team delivered that stock right to traders in the chat yesterday morning — just like they did with KALA…
It was Hoth Therapeutics, Inc. (NASDAQ: HOTH).
Just like KALA, it’s a biotech stock. And it had almost exactly the same news…
The FDA accepted the company’s investigational new drug application for its potential cancer treatment.
HOTH also has a low float of roughly 1.2 million shares, and it had massive float rotation.
Everyone thought this was the next KALA.
So it’s no surprise it had a big premarket move and morning spike. But like KALA, it was riddled with volatility halts.
That’s why in my premarket SteadyTrade Team webinar, I stuck by my lessons about waiting for the afternoon for a higher probability setup.
The morning price action was choppy. So even though HOTH didn’t have an afternoon move, I think it was the right call.
I mean, waiting for the afternoon worked for the second day in a row on KALA….
KALA chart: 2-day, 2-minute candle — courtesy of StocksToTrade.com
It followed the same VWAP hold, high-of-the-day break pattern. So until I see the theme change, that’s where my focus will be.
And HOTH is still hanging around, so it’s still on watch.
Just remember your job as a trader isn’t to catch every single spike.
Your job is to trade the highest probability setups with the right risk levels and discipline so you can stay in the game and grow your account.
If you get in the habit of chasing random and low-probability setups, you set yourself up for failure…
Eventually, poor risk management in a volatile stock will hit you with a massive loss that can potentially wipe out your account.
So look for the next potential big gainer by looking for stocks in the same sector and with the same characteristics as recent runners.
But also use your knowledge of market themes to your advantage. And avoid getting caught in the wrong trade at the wrong time.
Have a great day everyone! See you back here tomorrow.
Tim Bohen
Lead Trainer, StocksToTrade
P.S. Tomorrow is your last day to lock in your subscription to Pre-Market Prep as part of StocksToTrade Advisory. In the New Year, the price goes up!