Story stocks are shares of companies that are priced based on a popular narrative of potential upside growth. In technology sectors, this can hinge around a company’s potential to discover or invent a ground-breaking new technology.
Story stocks, such as Amazon or Tesla, are quite extreme examples of growth stocks. Their profits either do not exist or do not come close to justifying their valuation, and large revenue increases are required to sustain investor optimism. They are consequently volatile but offer investors significant upside in exchange for an increased level of risk.
Trading the news involves keeping a close eye on what’s happening in the world, particularly macroeconomic events (such as changes in interest rates) that impact entire economies. The same news stories might affect various stocks and industries differently, so it is important to build up a good understanding of how different stocks will react to certain events.
Company news announcements are also an important source of information. But while a positive press release, such as an earnings beat, could indicate that a company’s stock might increase, traders need to be quick to take advantage. For example, Virgin Galactic’s share price gained 8% in pre-market trading the day after its first successful test flight but ended the day down 14%, thanks to subsequent news that it was looking to sell shares to raise funds.