Stocks are trading higher this afternoon… in what is quickly becoming a dull market. That said, I don’t trade index ETFs like the QQQ or the overall market. However, I follow it because I’m interested in sentiment and trends. You see, one of the most important skills as a trader is picking up on trends and pattern recognition.
For example, I’ve noticed a trend that’s working right now…
It’s buying stocks ahead of its FDA approval date. Now, I’m not saying that this trend will continue forever…but it’s working now…and as traders… we must take advantage of these types of opportunities.
It’s how I banked over $10K in Nabriva Therapeutics (NBRV):
(FDA catalyst stocks are hot right now, if you want my alerts in real-time, click here.)
As traders, we continuously need to review our trades, the winners and the losers. We need to identify what’s working and ride that trend until it no longer works. On the other hand, if you have a strategy that isn’t working under the current market conditions, don’t fight the market, just shelf the trade until the right circumstances arise.
Be flexible and don’t be stubborn… if you are caught on the wrong side of the trade… take losses responsibly. And when you spot something working…. Don’t be scared to push it. That said, I want to share with you some of the details behind my strategy that netted me over $10K in NBRV. This is a trend that is currently working and one I’m going to continue to try to exploit.
Read on to find out the mechanics behind the strategy and a whole lot more…
Catalyst Runup Trade (PDUFA Dates)
My strategy is working really well right now. Specifically, my U.S. Food and Drug Administration (FDA) approval date trade. Basically, I spot catalyst events (Prescription Drug User Fee Act (PDUFA) dates) and trade around those dates.
If you don’t know about FDA approval dates, make sure to check out my free eBook here.
Now, let’s get some background information about the Prescription Drug User Fee Act (PDUFA).
PDUFA dates are important when you’re trading pharmaceutical and biotech stocks. Since biotech and pharmaceutical companies need to bring new drugs to the market as fast as possible… the PDUFA was established.
Previously, biotech and pharma companies had to wait for extended periods before their treatments hit the market. With PDUFA dates… this speeds up the process… in turn, giving us more trading opportunities… and it allows us to find clarity amongst the chaos.
Under PDUFA, the FDA has around 10 months to review a new drug application. In some cases, the FDA only has six months to review a treatment. Now, biotech stocks tend to release their PDUFA dates to give traders and investors a heads up. Generally, when there is a PDUFA date, stocks tend to rise into that…
That’s what I call the catalyst runup strategy. Basically, traders are anticipating an FDA approval… which tends to cause biotech and pharmaceutical stocks to pop. That said, knowing PDUFA dates gives me an edge in the market.
Now, it’s not only knowing catalyst event dates, but it’s also about spotting the trend and being selective with your buys and sells. I use Finviz to scan for potential trades… and I’ll also use BioPharmCatalyst to find potential catalysts in biotech and pharma stocks.
PDUFA Dates Examples
Here’s a look at the daily chart on ADMA Biologics (ADMA).
Notice the gap up above the resistance area… well, the stock had a PDUFA date on April 2, and it actually received FDA approval for one of its drug candidates. However, notice how the stock actually ran up into the date, after bouncing off the trendline.
That’s the trade we’re looking for… we generally don’t want to buy and hold a stock into a PDUFA date because it’s very risky.
Nabriva Therapeutics (NBRV)
Now, here’s a stock that I actually traded and alerted Biotech Breakouts clients about.
In the same watchlist with ADMA, I let Biotech Breakouts clients know that NBRV had an FDA approval date coming up. That let me know it was time to get in soon.
Check out the daily chart in NBRV above. If you notice, the stock was right at the green line (the 200-day simple moving average). I figured the stock with whipsaw a bit around there… but with an FDA approval date coming up… even if it broke below the green line, I could pick up some charts around $2.40… and my target was around the $2.80’s.
Remember, these catalyst runup trades can last anywhere between 1 to 4 weeks. I wanted to get in on this name and hold for a few weeks… because the PDUFA date is expected later this month.
Just a few days after I bought the stock… it went right to my target around the $2.80s.
Once it reached my target I booked 5 figures in trading profits… and I alerted Biotech Breakouts clients about my sell.
[Ed.note: Kyle Dennis runs BiotechBreakouts.com. He is an event-based trader, who prefers low-priced and small-cap biotech stocks.