Rather than playing biotech stocks sporadically or based on technical analysis , there are more constructs and rigid ways of getting the best out of them. Like everything else, biotechnology stocks are highly risky (especially penny stocks), but they also have a great reward potential should you trade them the right way. My brief thoughts and suggestions that follow should give you a better insight:
To be less overly vague, I’ll be direct and go straight to the point. The best way to play biotechs is to look for their upcoming catalysts–whether it be phase 1, phase 2, phase 3, NDA, PDUFA, and so on. After that, be sure to keep in mind the data report date and then play the run-up leading up… The anticipation into the data release usually drives up the price 20%-50%, especially when the D-ata Day is a one month to two weeks away, and if the stock has a lot of interests. Ideally, go for the less ambiguous ones as far as when the data is coming out. For example, I prefer–> “Phase 2 data to be released on Dec 3rd” more so than I do–> “Phase 2 data to be released in the 4th Quarter.”
How to Find them
Although there are a few biotechnology websites that outline biotechs and upcoming catalysts, I prefer to use BiopharmCatalyst. They have calendars that make it more aesthetically pleasing: a biotech IPO calendar, a PDUFA section, and a FDA calendar section that encompasses ALL upcoming catalysts. More excitingly, it’s FREE to use.
Trading them . . .
Essentially, you want to trade the ones with an exact date, as highlighted earlier. The reason for this is thus–that you don’t want to be caught holding, especially when data is bad. I generally just play the run-up and get out a day or so prior to the data release (this is why having an exact date is preferable). I mostly play the run-ups for bios under $5. Remember, it’s better when you time your entry well with the use of technical analysis (to identify support levels… check my other blogs). They usually start to run a month or so into their catalyst date, so start looking to get in around then.
AGAIN, I DON’T HOLD INTO DATA RELEASE!
This would be gambling, although there is a caveat. The caveat would be when you know the catalyst would be positive, such as a company getting a favorable initial response to like an NDA filing or the related drug. Either way, it’s a recommend practice to sell before the date of the data release. You can generally aim to get a minimum of 20% on these swings, although not all cases are typical, and you do also need to time your entry properly.
This is a new finding for a lot of you, so if you do decide to try this out, use a paper account or trade with a very small position. Once you see the results yourself and become more comfortable, then you could invest with a bigger position.