Why do some traders make lots of easy money from the stocks they pick- while lots of stocks you invest in give up their gains, lose momentum and even crash? What if there was a way to pick stocks regularly with better profit potential, leading to fewer losing trades and much healthier profits?
The fact is, successful stocks usually have 3 things in common, and in this article I will reveal what they are, and how you can find them.
3 Common Factors
Momentum is the first and foremost thing you should look for in a stock. Investors usually call it sentiment, traders call it momentum. You can make a decent assumption that when news is favorable on a company, sentiment is good, and momentum builds in the price because interest has gathered.
How do you find momentum? Everyone has a different way.
Me, personally, I like to looks for stocks whose RSI is rising, or crossed above 50, or 70. You can use our filter here to quickly find stocks which this is happening with.
Once you have a list of stocks with momentum, you need to look for other positive signs. Has it recently broken above a long term range? Does it look like it’s forming higher lows? Read the news, has the company been announcing new products, deals or results?
You will have base your own decisions on what you find. Once you have your list of stocks with momentum, you can monitor them.
Volume breakouts are a great way to identify the next move in a trend where you can look for an entry. If you have identified a bunch of stocks that seem to be building some momentum, then run our filter on your watch list each evening and look for volume increases above the 30 day average.
When a stock has some momentum, backed up by news or early signs of a trend breakout, a volume breakout often means there is (for whatever reason) increased activity in the stock. It’s your job to now monitor these stocks closely over the coming days and see if that momentum is now shifting up a gear.
Be aware that volume increases can also be in selling volume. You don’t want to be invested on those types of momentum!
Luck of the draw. What do you mean? You say I’ve got to get lucky to win at trading?
To a certain degree, yes.
However, this is what separates the winning traders from the losing traders. You can create your own luck by creating a trading plan.
Having a trading plan, a constant risk / reward, is how you create your own luck, and win at trading.
A set amount you’re able to afford to lose on any one trade is your risk, whilst having a point where you will consider taking profits is your reward. If you can balance this, and not get greedy, more often than not you will limit your losses, exit winning trades in profit, and not lose any gains you make.
It’s like being able to walk away from the casino when you’ve spent enough. You’ve made your own luck.
Ultimately, everyone’s risk/reward and trading plan will be different. It depends on time frames you’re willing to invest your money, funds at your disposal, and how often you can watch your stocks.
Luckily, you can work most of these things out at Stock Monitor, using our back testing of strategies, alerts for stock movements, comprehensive filters and monitoring tools. Best part is, you can access them all for less than a Starbuck’s latte per day.
Start 14 days free and test it out.