In trading, the biggest stock winners are often the center of attention, especially in the middle of a market rally. Skyrocketing share prices tend to be followed by a rush of traders hoping to get in on the action. Most traders don’t even consider the fact that the biggest stock losers may actually result in profitable gains. In other words, losers have the potential to turn into major winners. How? More on that below.
Analyze losers, anticipate winners
One of the most common phrases echoed in the world of trading is “Buy low, sell high.” Keeping track of the biggest losers can enable traders to do exactly that. While it is not easy to determine if a losing stock will continue to dive or start to soar, there are a number of indicators that help predict when the trend might change. The idea is to look for catalysts or events that can propel the stock to move in the opposite direction. Here are some factors worth considering when analyzing stock losers:
- Upcoming earnings report: Did the company perform better than expected? If so, it could give stock a price boost.
- New product release: Though the release of a new product doesn’t guarantee a company’s stock will go up, it might certainly have an impact.
- Major announcements/news: Does the company have new, exciting plans in store? This could be promising for share prices.
- Company changes: Is a new, impressive CEO taking over? Maybe the company is planning a merger or acquisition?
- Stock history: How was the stock performing this time last year?
Of course, traders should not rely on these catalysts alone but also use technical analysis to inform their trading decisions. Also note that all of the factors mentioned above may have a negative effect on the stock. On the other hand, when losing stock does begging to turnaround, it makes a great trading opportunity.
Alibaba: Should you buy the dip?
Let’s take a closer look at an example losing stock. Alibaba has been trading flat this year, and share prices have been low throughout most of August. In anticipation of the tech conglomerate’s August 23 earnings report, many analysts debated whether buying the dip could pay off. That is, analysts believed that BABA stock would see prices increase were the company to release a strong earnings report.
The results? Alibaba managed to beat earnings expectations, causing shares to rally 3% in pre-market trade. However, BABA shares have been hit by the impact of the U.S.-China trade war, which many analysts believe is preventing the stock from making higher gains.
This is a great example of how multiple factors contribute both negatively and positively to a stock’s performance. BABA stock is still in the red, but there are traders who consider this a buying opportunity. After all, Alibaba had a positive quarter with significant user expansion and company growth, making the company one to watch. It is hard to predict what will happen next in the world of trading, but keeping your eyes peeled for major movements helps traders stay ahead of the game.
