 01/07/2021 The Hot Sector Cycle ✔️ Should you buy 'the next Apple?' ✔️ Hot sectors move fast — follow these rules to be prepared for the action.  It's every trader's dream — to buy 'the next Apple' at a rock-bottom price.
When a hot new technology is coming out, it can come with a lot of hype. And stock prices can climb to crazy high levels fast.
Often, what seems expensive at the moment can appear cheap in hindsight. It's no secret — new and disruptive technology can cause pandemonium in the stock market.
You don't need to look very far to find examples. The 2000 dot-com bubble, the 2018 weed craze … Right now, the electric vehicle sector isn't showing any signs of cooling off.
How can you tell if the craze is warranted? Better yet, how can you possibly trade these stocks?
I want to explain how the craze around new technology heats up and cools down. Then I'll tell you the process I use to trade these plays safely. Sponsored Ad  Tim Sykes just released a private webinar (from December 2020) for everyone to see…
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Technology Innovation
I love disruptive technology. The internet, drones, electric cars, self-driving cars — the list goes on and on.
The world is changing fast. New innovations have the potential to change our lives dramatically ... and make billionaires of those who bring the technology to market.
Most of us don't have a billion-dollar idea like Steve Jobs, Jeff Bezos, or Mark Zuckerberg.
However, traders can still potentially benefit from visionary ideas. Some early investors in these game-changing businesses have made millions.*
It's not easy though … And I'm not one for holding and hoping. Sure, I wish I'd bought Tesla, Inc. (NASDAQ: TSLA) pre-split for $180 per share. But I didn't. There's no way of knowing what stock could explode ahead of time.
The fact is, most companies don't create millionaires from a $10K investment. You might be better off buying a lottery ticket than trying to pick 'the next Tesla.' Your odds are about the same anyway.
No one knows what the next trillion-dollar company will be. But there's a cycle that seems to repeat in all hot sectors... Up and Down: The Hype Cycle
I've come to recognize a few common themes in my 20+ years as a swing trader.
There is a cycle of hype that repeats with most new technology. It starts with elation — but often ends with disillusion.
First, a new technology emerges. Often the market doesn't pay any attention to the new technology or company.
But slowly, interest begins to grow. Sometimes it spreads through word of mouth, and other times it might be through a news story.
Beware of old fashioned pumps. They can still happen. That's when shady characters try to convince unknowing investors they'll miss out if they don't buy now.
Whatever sparks the fire, once it starts, it can grow fast.
You can gauge public interest in the new trend by using Google keywords. Searches will grow as the interest grows.
As the trend heats up, related stocks can potentially start to soar. Track the keywords over time to see if the public interest is growing or not.
Just remember — no hype lasts forever.
Eventually, the stocks get overextended. Big price corrections happen when the initial excitement fades. You don't want to get caught holding the bag when that happens. Sponsored Ad  Matt Monaco is 22 years old.
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When to Cash Out
Remember what I said earlier. It's nearly impossible to pick the next great company years ahead of time.
Don't try to predict. Ride the hype as long as it lasts. Set profit targets for your trades and take partial profits along the way.
You'll never pick the very top. Don't even try. But don't get greedy when a stock is moving in your favor either, because you never know when the trend will change.
I like to cash out my position in chunks when the trade works.
Whenever I'm in a trade, I cash out at least 25% into any big spike. And I cash out at least 50% if the trade hits my profit target.
Then I like to hold on to a portion of my position to see if the price can keep climbing.
But I'm not holding and hoping forever. I move my stop up just in case the stock reaches its peak and starts to fall. I can still get out safely with a green trade.
Crazes can last longer and go higher than anyone thinks is possible. That's why I take partial profits. Holding a portion of my position allows me to make even more if the stock rips higher.
But if the stock peaks and starts to fall, I've already locked in a solid gain. Partial profits can potentially give you flexibility.
I'm not looking to hold any stock forever... Eventually, It All Comes Crashing Down
History tells us that the hype will eventually end. No stock has ever actually gone to the moon.
Don't get stuck holding when the inevitable crash happens.
Expectations can get overinflated very quickly with new technology. Once a stock reaches overinflation, disillusion can set in.
Eventually, there isn't new interest and the stock price inevitably reaches a peak.
That's why I always trade with a stop.
I don't want to get stuck holding when the stock comes back down. You never know when it might happen either. Sometimes public interest doesn't end up translating into stock buying.
I can't stress this point enough...
A stock can fall at any moment. The hype can end earlier than expected. Or the technology might not catch on.
When that happens, it's not a big deal. Cut your losses and get out of the trade.
It's better to protect your account than fall in love with a company or technology. Plus, if it starts coming back up, you can always buy it again.
Trading is an uncertain business. So always trade with a stop. And always have a plan to be wrong. Sponsored Ad  Hype, Spike, Crash, Repeat
Hype comes to the market in waves. Ever since March 2020, we've been in a period of market elation.
Could it keep going through 2021? Yep, I think it's possible.
But I could be wrong. That's why I always have a plan. If I'm wrong, I cut my losses.
Watch the news and the market for the newest hottest technology. Track the excitement as the next parabolic moves happen. But keep in mind — it will eventually end.
Maybe not today, and perhaps not tomorrow. But history has proven that every hyped-up bubble the market has ever produced has ended.
Always have a plan … and always have an exit strategy.
Don't get burned,
Paul Scolardi Editor, Swing Trade Millionaires
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