The Best Setup for New Traders: A Changing Fundamentals Trade ($M)

What is the best setup for new traders to trade? A Changing Fundamentals Trade!

With a Changing Fundamentals Trade, one day the fundamental strength about the name is substantially different than just the day before. These trade setups tend to move faster than the broad market (both up and down.) They trend intraday. They can trend for 1-3 days for those of you who are swing traders. It’s this new news catalyst, a significant change in fundamentals, that propels so much opportunity. These trading opportunities can make your trading month!

The other reason I like this setup for new and developing traders, is you do not have to make as many trade decisions as other setups. You get in. You sit in the trade. And you exit when your target is reached.

For example, below we see an example of changing fundamentals in Macy’s, stock symbol $M, and the stock plummeted.

On May 11, Macy’s (M) plunged 15.2 percent after reporting a 7-plus percent drop in sales, its fifth consecutive quarterly sales decline. Forward guidance was cut as well. Earnings came in at 40 cents (vs. 36 cents expected) while sales totaled $5.77 billion (vs. $5.95 billion expected). Same-store sales dropped 5.6 percent.

In our training program, The Winning Trader, we teach 10 trades that you can add to your trading PlayBook, and one of those trades is the Changing Fundamentals Trade.

Another excellent example of this trading setup is when a company suspends their dividend, as I wrote about in a recent Seadrill trade, an offshore driller.

Yet another example of this setup was when Lumber Liquidators, stock symbol $LL, saw 60 Minutes do a hit piece questioning the safety of a laminated lumber product they sold, the company’s fundamentals significantly changed, and the stock did this……

For a recent training class, I mandated that new traders only trade setups with significant changing fundamentals. For our latest class, traders must place changing fundamentals trades at the top of their list for stock selection. They start first with these trades during their AM preparation. They must share with me all stocks that have a significant change in their fundamentals overnight. We want them focusing on these stocks as they start their trading career.

This setup is an excellent trade to add to your trading PlayBook.