What To Look For When Hunting Stocks

So you’ve decided that you want to dive deep into the world of stocks. In doing so, you have to determine whether you are an investor or a trader. An investor looks at a handful of things including the current day’s trade setup. A trader looks for a quick return that utilizes mostly the company’s chart and any relevant news that may be pushing the stock up or down.

Let’s start as an investor. It’s no secret that solid earnings and a liquid stock make it an attractive buy. But what else?

Volume – Volume measures how much buying and selling is happening– usually one in favor of the other. The volume of a stock on a particular day, week or month tell you how much trading is going on. No matter how good a stock is valued, if other’s do not think so, your stock will never move in price. It’s important to understand the daily average volume and whether or not this number is holding still throughout the weeks or if it is fizzling out.

Support & Resistance – The hallmark analysis of every technical chart relies on identifying retracement and extension levels. In laymens terms, whenever a stock goes up, it must come down to a specific price before going back up again. Identifying those price points require you to understand support and resistance prices. Identifying these can help you prevent buying at the top and selling at the bottom.

Buy The Rumor/Sell The News – This is the textbook example of what we saw in the Big Short or virtually every stock. Rumors propel retail investors to jump on a stock, thereby spiking the price up until the actual news comes out. Most often, the news isn’t as big as the rumors and you will start to see sharp declines in prices. This happens because insiders and institutional investors usually get word of the announcement slightly before the official press release. Nevertheless, it’s very important to stay up to date on all press releases and company filings to ensure that your investment is protected.

Institutional Ownership- When big hedge funds and portfolio managers hold onto a specific stock in large numbers, it usually signals that the company is upto big things that hasn’t made it’s way to print yet. This is a good way to enhance your faith in a stock.