How to Capitalize on Hype and Volatility in the Stock Market

You probably heard about the recent hype behind the Rocket Mortgage stock ($RKT) last week.

The company announced its IPO, also known as an initial public offering where they sold shares starting at $18 apiece.

With such a great opportunity for quick cash, I made sure to set an order for the moment the stock went live and just sat and watched it climb.

Once I saw a nice number I was happy profiting with, I sold and got out. Building capital in the market is a great strategy to grow your portfolio in other sectors you are more versed in.

The stock climbed as high as $26, and that’s when some investors particularly on Robinhood jumped in on the hype. Now, they’re getting burned because all of the hype and volatility ran out.

Rocket Mortage is a great company for the long-term, but I’m pretty sure most investors got in because they believed it was going to the moon within the first week.

This is just one of the examples of how investors and traders are becoming bag-holders.

What Is a Bag Holder?

According to Investopedia, A bag holder is an informal term used to describe an investor who holds a position in a security that decreases in value until it descends into worthlessness. In most cases, the bag holder stubbornly retains their holdings for an extended period, during which time, the value of the investment goes to zero.

Some companies that come to mind are Genius Brands ($GNUS), and TOPS Ships ($TOPS).

There were a lot of people who made quick easy money. But there were a lot of people are now stuck holding this stock until it recovers to at least break-even.

How Do you Make Money on Hype?

One of my recent strategies has been to hop in on IPO’s because there’s typically an optimistic mindset behind everyone following the ticker.

What is an IPO?

An IPO is the initial public offering where the stock goes public at a set price the company agrees on and depending on the public’s response, the price is in constant motion.

Then, once people catch onto the hype and hop on the train, this drives the price upwards. When I finally feel happy with the profits I sell and get out, giving me more capital for the next big thing.

As a fairly new investor, I hold a lot of long-term stocks while having money on the side for aggressive growth.

What news drives price changes?

News is a great way to stay up to date with your investments, but it’s not guaranteed to give you success.

According to Investopedia, “chasing the news is not a good stock-picking strategy for the individual investor. In most cases, professional traders react in anticipation of an event, not when the event is reported.”

How do earnings reports affect prices?

Earnings reports state the earnings for a company typically by quarter and either meet or don’t meet the expectations investors are looking for.

In uncertain times such as the Pandemic, earnings reports haven’t acted as clear indicators whether a stock’s price will certainly go up or certainly drop. There’s still uncertainty, but it’s one way to gauge a sense on what could happen to the price.

According to Investopedia, “If the release of good news remains inline with your investment thesis and a sell off occurs, it just might represent a buying opportunity for you and a chance to add to your long position at a relatively low price rather than selling with the crowd.”

As long as you do your research and pay attention to your portfolio, you can have a lot of success swing trading a small portion of your portfolio.

When Do You Sell on the Hype?

Like everything in life, all good things must come to an end.

So pay attention to the charts and realize when that rocket is on its way back down. It’s important not to get too greedy with your profits. Get in and get out.

RKT Stock — Yahoo Finance

If you take a look at this diagram, the stick releases at $18, climbs up to around $24.60, and then has a downtrend.

What you’re seeing here is the selloff point. People are pumping up the price and then dumping it for their profits.

Don’t get on board the train if it’s to late. That’s how a lot of investors get burned.

Get in and get out.

Capitalize on the Volatility

There are many ways to take advantage of the stock market’s behaviors and patterns.

As long as you find a strategy that works for you, there’s a big chance that you can capitalize on the constant volatility we’re being presented with.

Some will be winners, some will be losers, but that’s trading.

Always be sure to do your DD (due diligence) and always stick to what you know best.

“You don’t have to swing at every pitch. The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot.”