Deen,
When I look through IBD for trading ideas what I look for is as follows:
For Longs:
Stocks that have gone up on unusually high volume. I especially like stocks that are trading near their 52 week lows since that's an indication of an overall trend reversal. Once I indentify potential candidates, I briefly check the fundamentals to see what the company does and whether or not they have consistantly made money in the past. Even in short term trading I believe it is crucial to know the fundamentals of a stock you're thinking of trading. Common sense dictates that a good company that has products and makes money is more likely to advance short term than a company built on promises. I believe they are also less risky trades since they are less likley to tank severely. I look for recent news releases to get a feel for whether or not recent releases have been positive or negative. It is also interesting to note whether a news release is responsible for the recent volume surge and price advance. Often, the best choices are the ones that have surged for "no reason". Fund managers and MM's are always privy to key info. before the rest of us are and they often tip thier hand by buying into a stock heavily just before a big announcement. Lastly, I check the technical health of the stock. Before I buy I want to know if a stock has been under heavy accumulation or whether a lot of selling has been going on. I also want to get a feel for a stocks momentum so I can pick the approriate entry and exit points. For example, if the stock has run up 20% or more in recent weeks, I may not want to buy until I see a pull back. These are critical points to consider when trading short term since 1 or 2 points can mean the difference between profit or loss.
For Shorts:
I look for stocks that have encounter heavy buying on larger than average volume, just as with longs. However, in this case I look for stocks that are trading into new 52 week highs that DON'T have a product on the market and have never done anything but lose money. In other words, companies that are fueled by hype and promises. I also look at stocks that are DOWN on larger than average volume. This is often a signal of a trend reversal to the down side, especially if they are currently near their 52 week highs. Again, I check the fundamentals, news releases etc. Then I wait until the technical signals are clearly showing continued weakness and identify an appropriate entry and exit point. The relative strength indexes on IBD's tables are also helpful in giving me a feel for how volatile a stock has been in the past. It helps you to assess the risk of each trade.
As a final note, I would like to add that there is no *one* source for getting ideas. My ideas come from everywhere. IBD, the news on TV, the SI threads, magazines, you name it. I'm always looking out for information about new companies or the ones I follow. I also routinely follow a list of about 50 stocks on a day to day basis. I find that when you become familiar with a stocks trading pattern, it's often much easier to identify price movements in advance. Each stock has it's own trading "signature" and they are an invaluable source of winning trades when other sources fail to produce good ideas. It is also critical to know when a trade has gone bad. If the stock doesn't react the way you anticipate- GET OUT! It's better to take a small loss and move on than to ride a loser into an even bigger loss. The biggest mistake would-be traders make is allowing a trade to turn into an investment. Investments are stocks you buy for retirement that will sit in your account for the next 20 years. Know the difference and be prepared to lose money on occasion if trading is your goal because you WILL lose on occasion. The key is to not lose big. With that in mind I also recommend trading smaller lots. I like to trade lots sizes in the 250-500 share range. That way, when I do lose on a trade, it's not a lot of money. Trying to trade large lots can be a painful experience when a loss of 1 pt can mean thousands. It takes a special kind of person to not let large losses such as this bother them and I am not one of them. You can still make a lot of money trading smaller lots and they are easier to liquidate at your limit price. Above all, I think you have to have a good feel for the markets to short term trade successfully and that is something that can only come with experience. Hope this helps.
Hank
PS- You should also be prepared to spend a lot of time tracking your trades and research new ones. Anyone can get lucky but a consistant effort pays the bills. I spend several hours a day after the market closes and a large part of my weekends doing research. |
