Friday, November 7, 2008

Things to look at When Trading

When trading, especially short term trading, there are a number of things that are important to look at. Each individual chart should have these things before you decide to trade them.

1. Do they follow your trading rules? You should have a set trading system in place every time you place a trade. Obvious the first thing you should look at before placing a trade is, is the stock giving me a buy, or sell signal based on my rules.

2. Do they have earnings coming up? Earnings are announced every 3 months. These reports can move the stock huge in one direction or another. Trying to predict them correctly can be like trying to guess the next number the roulette wheel will spin. Needless to say you want to avoid getting into stocks that will be giving off an important announcement in the near future.

3. Does the stock historically do well with your trading rules? I’ll be the first to say some stocks hate me. They constantly give me losses every time I enter them for a swing trade. Other stocks will show me a profit 60 or 70% of the time. It is important to always look at the history of the stock you are trying to trade. Back test your system on that stock to make sure it is working there first.

4. Look at the company’s fundamentals. I realize fundamentals work well for long term plays but they are not necessarily accurate in the short term. But they do still offer buying and selling pressure.

5. Take a quick look at the afterhour’s price. This part is arguable but I always like to look at the afterhour’s price of a stock before placing a trade. If a stock is trading at $55 by closing but is only trading at $43 after hours there may be something fishy going on and you probably want to avoid it.

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