Learning the Difference

Picking stocks that are tradeable is the most important factor to making a successful trade.

Stocks have their own personalities, just like people. Some companies are young and adventurous; their stock reflects that personality and grow fast in a very short timeframe. Some companies are in their senior years – they move slow but are very wise because they’ve been through everything. They have the reliability of a sunrise. You may be bullish both these companies, but only one may make a good trade.

A bullish stock that takes twenty years to move 20% is not a good trade. But it may make a great long-term investment stock, especially if it’s paying a dividend that gets increased every year that’s 4x what you could get at a bank savings account.

Stocks that make good trades have a good amount of volume (e.g. an average daily volume over 100K) and a good amount of volatility. You’re looking for big price moves (e.g. minimum 5% so you can get in and out relatively quickly).

Even once a stock meets these most basic criteria of being considered “tradeable,” it does not mean that you should immediately place a trade that same day. While this sounds obvious, many traders make the mistake of getting overly excited about a new stock they found because it shows up on their screener, thinking it’s time to enter a trade immediately. This could not be further from the truth – fundamentals, where the price is located relative to its long and short-term patterns are all considerations that must be reviewed before placing that trade.

Don’t try to force a stock to be something it’s not. The market dictates its natural flow; your job is to identify that flow and use it to your advantage.