Stock Picking

Deciding what stock to trade on a particular day is among the most important things for a trader. For any beginner, it’s therefore among the most important things to learn. A good trader may have an excellent trading plan and have great potential but without the ability to choose the right stock, chances are he or she is doomed to eventually fail.

What you need to always keep in mind when choosing a “stock picking” is that you need to see momentum and volatility.

When choosing a stock, you really want to see volume, which indicates market interest and volatility, which can allow price movement and profitable trades. The rule of thumb when stock picking is to give priority to stock of companies that have just released results, made announcements or have been the center of important news – as well as stock of companies who are expected to do any of that imminently.

Some of the news that can alter the price of a stock are periodic and are released at certain intervals of time while others are “a little less expected”, shall we say.

Major movements in price can often be caused by news such as:

1. Earnings report.
2. Guidance raised.
3. FDA approval.
4. FDA decline.
5. Company Investigation.
6. Analyst upgrade.
7. Analyst downgrade.
8. Company Partnership.
9. Introduction of a new product or service.
10. Stock gap up/down 3% with increased pre-market volume.

You can watch and absorb all this news almost daily during pre-market hours while you build yourself a watch list for the day. Daily news can create a rollercoaster in price movements due to the fact that there are so many traders acting on them at the same time. Let’s take a look at an example just to see how this actually works. Let’s say, for example, that just before the market opens, news is released regarding a large pharmaceutical firm that has just obtained FDA approval to start distributing a new drug to the market. This news, it’s fair to say, is likely to cause a rise in the price of the firm’s stock as traders will perceive it as a sign of higher profit and good work on the part of the directors. A company that has released excellent quarterly reports, received a rating upgrade from a senior analyst and is also currently trading at a 3% gap up will probably be on most traders’ screens;  traders who, just like you, expect that the stock price will go up. The number of shares traded just after or before important news can be huge and prices can easily become ultra-volatile. These are some of the criteria that we think are very important for a beginner trader to keep in mind when stock picking: