Step 1: read the news
Start by picking a handful of companies that you wish to analyse (read the previous lesson for an overview of how to shorten your list down to this level). Then start looking through the financial press for an overview of what's happening with those companies right now.
Step 2: consider different scenarios
From the information you have collected above, you can now start creating imaginary scenarios that you would be able to use as trading opportunities.
Step 3: weigh up the odds
Once you have made a list of these potential scenarios, categorise them by likelihood:
Highly likely – the market has priced in the product being as impressive as markets already expect. This is already priced into the share with the 25% recent increase.
Possible – the product's launch could be brought forward. This outcome has not been fully priced in.
Unlikely – the product is not as revolutionary as thought. Although this outcome is not priced in, some traders may be holding positions in expectation of this.
Very unlikely – the product is cancelled. The market is not expecting this at all so it has not been priced into the share at all.
Step 4: technical analysis
In this event that any of the above scenarios do materialise, go straight to your price charts and use technical analysis to find entry and exit points for the long or short trade you have chosen.