The Story Trading Method
Unlike Day Trading, we don't start with technical analysis. Rather, we start with the headlines to screen for ideas. From there, we combine fundamental analysis, technical analysis, and social sentiment to devise our trading plan for a story trade.
The Ebola Scare. Fergusen Police Cameras. Shift to alternative energy. The Better Burger trade. These are popular news themes which capture the attention of the investing public and can bring undervalued companies to fair value or over-valuation in short periods of time. That's where we start.
Maybe you've caught us knocking pure day-traders but we do think there is some truth to technical analysis. And even if there wasn't, so many people believe in it that it becomes a self-fulfilling prophecy. We look at key indicators such as moving averages, volume, short interest, float, relative strength index, and other indicators to further qualify leads and identify support entry levels and price targets.
Finally, it does no good to invest in a story trade idea if you can't find any buyers. Retail interest can drive momentum in small-cap stocks and sometimes in momentum stocks as well. We analyze the social sentiment to determine if a stock has enough of a following to take-off when headlines start hitting the wires. But alas, it's not always that simple. Sometimes we'll prefer a stock has very low social sentiment in order to capture more upside. This is an art more than a science but we are working with NYU developers to create big data algorthims to help us quantify this important variable.
By considering the Headline News, Fundamentals, Technicals, and Social Sentiment, we can filter ideas and develop trading plans for story trades which can generate 5-100% returns per trade. Trading periods can be for any holding period but most often are for a few days to a few months. While technicals are often used to find the best entry and exit prices, the exit is frequently an event or date rather than a specific price. We do not use stops in story trading. The stop is the story itself. If the story changes, our position may change. More than often, when day-traders are being stopped out, the story trader will increase his or her position. By knowing the story and trading plan well, you can out-perform the market significantly.
Story Trading was created by Ben Rabizadeh. Ben Rabizadeh is an individual investor who now trades full-time. He's been able to shift to full-time trading due to outsized returns. In 2013 he earned a 100% return in his portfolio and in 2014 he earned a 200% return.
These outsized returns were mostly achieved through story trading where he achieved 5-100% returns on individual trades with holding periods ranging from intra-day to 3 months.
Ben Rabizadeh tweets his story trade ideas often on StockTwits.com where he has over 1,000 followers, presides over a live chat-room during trading hours, and has previously published a key story trade on SeekingAlpha. Look for more research to be published here and on SeekingAlpha in the near future.