There is nothing more exciting than finding an undervalued stock and seeing it explode out of nowhere rising in value 100% or more in a few weeks. Some stocks can move as much as 1000% in a year and?. Even after the stock market crashed in 2000, some stocks still have gone up 500% or more in a year.
So how do we find these? Well first let me say that there is no way to know which ones are going to double or triple in value. If we knew then we could literally "bet the farm" on the trade.
The main thing we can do as swing traders and position traders is to uncover stocks that have the potential for profits based on certain technical parameters found on the charts. There is not enough room in this article to go into depth on the technical analysis of stocks, but what I am going to do is share with you the first step in sifting though the thousands of stocks that trade each day.
One of the easiest ways to cut your list of stocks down is to use a stock scanning software such as "Stockfetcher.com". What it allows you to do is program in any criteria you want and then it will automatically spit out a list of stocks that meet those exact criteria.
Let me give you some specific examples?. For starters say you only have a small account of $10,000, you shouldn't be looking at expensive stocks that are in the $50-$200 range. This is because when they are too expensive, you can't buy many shares. So, the first thing I would do is tell the software to only give me a list of stocks under $20. I would also have it screen out stocks less than $2 as I don't want to trade penny stocks.
Second, I only want a list of stocks that trade at least 500,000 shares a day. The more volume the better as there is more liquidity. This means that it will be easier to buy or sell shares at any time. Stocks with high volume have much less chance of being manipulated by market makers and market insiders.
Third, I want stocks that have a lot of volatility. Volatility is what causes fast movement over a short period of time. Old blue chip stocks such as Caterpillar, Ford or Kellogg's don't move that fast and have little volatility. To make sure you have volatility, I would tell the software to find only Nasdaq stocks. Since this comprises of mostly tech stocks, the odds are much higher of strong and fast moves.
Fourth, if the market is in an uptrend then I want to be a buyer so I could program in the following? Look for stocks with a relative strength of 90 or above. This will ensure that the stock has a lot of upward market momentum. You could even add an additional filter to cut the list down more. For example: Tell the software to look for stocks that made new highs within the past 90 days.
You could use the exact opposite approach to short stocks in a bearish market. Look for stocks with a relative strength of less than 10 and made new lows within the past 90 days.
What is really cool about stock scanning software is you can do the job in less than a minute. Without this software the work is slow and tedious. Once you run the scan you should have a relatively small list of stocks to examine closer.
The final step is to examine each stock for certain technical analysis patterns that can lead to explosive moves. However, as I said above there is just not enough room to go into detail here.
Hope this gives you some food for thought and points you one step closer to your goals.
This article is courtesy of Dr. Jeffrey Wilde, a trading veteran with 15 years of experience in all major markets. He is a trading coach to over 1500 traders in 47 countries.
For additional info: http://www.win-at-trading.com
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