What Stock To Trade?
There are quite a few logical, common sense reasons we can use to either chose to keep or chose to eliminate a stock from our trading.
There is also an order of elimination we should try to follow.
Firstly we should look at ‘trade volume’ and ‘company size’.
We need to eliminate any which don’t have a high volume. The volume is the number of shares traded at any one time and high volume stocks would be associated with well known companies with a medium to large capitalization (or size).
Low volume stocks would be smaller companies, some penny stocks. Penny stocks are risky and highly volatile, something we should avoid. Eliminate any penny stocks.
High volume stocks are easy to get into and out of and are more stable. It is very unlikely you will wake up one day to find the company price has halved or worse, the company does not exist any more.
In most cases, separating the good from the bad will be glaringly obvious, but if you are having trouble then take a look online at our dozen’s market capitalization as well, and eliminate the smallest four or five.
As trading volume and company size go hand in hand, eliminating the companies with the lowest trading volume and market capitalization from our dozen will leave us with good solid plays. These indicators should also help us to eliminate quite a few of them.
Next, of the ones remaining, we want to take a look at the last week to ten days of trading.
What we are looking for is the stocks which have experienced a pull back in price in the last few days. In other words, the price today should be a few percent lower than the top of a few days prior.
Doing this will help us to establish a good entry point.
Of the several left of our dozen, we should be able to extract three of them best ready to take to the next step.
If you still have more than three then there is another indicator you can use, and that is yourself.
There is nothing wrong with choosing a company you know if you use their products and you trust them. Similarly if there are companies you have never heard of or don’t know what they do, then you can eliminate those too.
Your personal knowledge of the companies and their products, together with the volume and company size is really the extent of our ‘fundamental analysis’.
Furthermore, if there is some personal reason why you don’t want to trade in a particular company’s stock then just eliminate it now.
This is just one of the tricks you’d learn in the ‘Ten Steps to Profitable Trading’ ebook from Best Trading Strategy.