There are many ways to skin a cat in the stock market, but one of the best ways to do so has been to find an early stage 2 stock and ride it upwards. 

If you’re an investor – it doesn’t matter how undervalued your stock is – to realise a gain on that investment the market needs to notice and then narrow the value disconnect.

This is often one of the complaints of the value investor. There is comfort in the margin of safety, but it can be a lonely wait. 

In the recent decade, momentum has trumped everything. And more than momentum – a good story.

This is why companies like ITM Power have a market cap of over £1 billion. Total income in its half-year report was £3.8 million, of which only £2.4 was revenue, and £1.4 million was grant income!

I’m no great investor but it doesn’t take a Warren Buffett to see that the share price may be rich and much of its potential success could well be priced in.

But as much as anyone wants to crow about how it can’t last – the real winners have been ITM Power’s shareholders.

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Here’s a chart of ITM Power since 2019. It’s surged from 25p to a high of 240p. This chart alone explains why trading stocks that are in stage 2 is a great strategy. It’s one that has been employed by Weinstein, O’Neill, Minervini, and countless others. 

Identifying stage 2 stocks early is a key ingredient to stock market trading success, as these stocks offer plenty of breakout opportunities to trade or even average up. 

Nearly three years ago now, I bought my first shares in Future Group. I believed it had a scalable business model, and it had nearly trebled from the lows and so the stock was clearly in a stage 2 uptrend.

I was sadly stopped out of my last lot when some chap across the pond had a pop at Future and derailed the price, and the stock has gone one to post even bigger gains. 

There may be a lot left in the business, but it’s certainly better to be buying closer to the start of the move than after the move is well-documented. It’s fine to be late to the party – the…

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