Events occur in many forms: company events, investor events, product events, policy events, and so forth. When an event occurs, investors react to the news by buying or selling shares in certain stocks. Over time, the behavior of investors in how they react to events follow patterns.
Those patterns can be used by traders to profit from short and long term movements in stock prices. If the pattern is known, the trader can set their entry and exit price to follow that specific pattern.
While this may sound difficult, it's quite easy. Most people who invest in stocks or ETFs change their investments based on the news they read. If they own an airplane maker like Boeing and learn that the Boeing plans are crashing due to mechanical issues, it's likely they will sell the stock out of fear the company's revenue or earnings will be depleted by the negative press and events.
Trading the news like this is event-driven investing, only in our Boeing example, the trader has no plan other than to sell the stock. He or she isn't thinking about a target exit price or the possibility the share price will return to normal once the investigations into the crashes are over and reveal a unique but explainable problem.
Event-driven investors do use these more tactical bits of information to made trades based on patterns of how stocks react to events. LevelFields is the only platform that pairs dozens of event types to the patterns of how those events affect share prices so traders can quickly find new events to trade and see how they should or could trade them.
Event-driven investing is not new. It's been around as long as the stock market. And hedge funds use event-driven investing all the time to generate insanely high returns. Some of these strategies have fancy names like "merger arbitrage" or "distressed asset" strategy but the execution of the trade is quite simple. The hard part is finding the opportunities and knowing the patterns - that's what LevelFields.ai is good at. The easy part is making the trade.
Some event-driven strategies are two-sided, meaning there is an equal chance the share price can go up or down but will move significantly. Options traders can use these event types to bet the price of the equity will move in both directions via an options straddle or strangle.
Tesla product launches are a good example of one such event. Sometimes the go really well. Other times, the bulletproof windows shatter during the demonstration. In all cases, the share price of Tesla is affected.
By how much? That's what the pattern identification software system is for.
Event-driven strategies can yield high returns, as events are the main driver of stock price volatility. Some events are transformative to companies. Events in the short term have altered share prices of small companies by 900% in a short period. Most move prices 10-30% short term, though events can change the entire company's trajectory for years.
For example, a company that launches a new game-changing product that will driven billions in revenue for years to come (e.g. iPhone) will drive the share price up not just short term, but long term as well. Amazon is constantly launching new products and large scale efforts. While the stock price moves some on the launch day, the larger profits are realized over longer term periods and by shorting the stocks of small companies their new offering may put out of business.
Many event-driven strategies center around people. The hiring of a CEO is a major event for a company. If there CEO is believed to offer a path to greater profits and revenue, the share prices go up.
Conversely, the departure of a CEO is also a catalyzing event for share prices that can be positive or negative. A beloved CEO like Disney's Bob Iger who departs can crash the share price of Disney. On the flip side, when a company is struggling or their CEO is viewed as unstable (e.g. Uber), the changing of the CEO is a positive event for the share price.
Event-driven strategies really can be anything. The key is in understanding how the event affects similar stocks via pattern recognition and finding the events early enough to capture the gains or losses.
Join LevelFields now to be the first to know about events that affect stock prices and uncover unique investment opportunities. Choose from events, view price reactions, and set event alerts with our AI-powered platform.
Don't miss out on daily opportunities from 6,300 companies monitored 24/7. Act on facts, not opinions, and let LevelFields help you become a better trader.