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Which stock should I choose to trade?

Hey guys:
Recently, I have built a few stock watch lists. After I deeply analyzed these stocks. I kept about 5 or 6 stocks in that list. But when I begin to trade, I found a little problem. These stocks all seems to suit my trading strategies. But my position management strategies only allow me to hold 2 or 3 stocks. So I tried two methods to deal with this. First, watch them during trading, until I found the strongest one in that list, I will buy it. The second way is to choose the stocks that I will trade and abandon the others in that list.
So, for the first method, the problem is if the stock gaps up or the price rising up too fast. Maybe I can not buy it at the best price. And also, even the stock seems to be the strongest at the beginning, but maybe the price has been pulled down later soon. The second method can help me buy the stock at a expected price level. But sometimes, the stock I bought seems the weakest one in that group.
So, you guys ever have that kind of problems?


  • Yes, I have had the same problems. An important thing I have learned is to first understand overall market conditions. Understanding overall market conditions helps establish a trading bias. I forget the number, but I believe something like 80% of stocks move along with the overall market condition. So, your odds are better understanding the market condition.

    As of this moment, the major exchanges and composite indexes are in a big correction. If you look at NYSE Bullish Percent Index, the value is 48%. Below 50% is the definition of a correction or downtrend. You have to use other market indicators too, and more aspects of Technical Analysis.

    Strong stocks are vulnerable if the composite indexes are falling. They can be affected by volatility too.

    Gaps are a difficult beast, and I tend to avoid them because they usually show overbought, but I cannot figure out when it continues to rise in the overbought condition, or if it will correct some. I usually prefer to wait for some pullback.

    Even though daily charts are the most looked at, they can be deceiving because of trend identification and volatility and manipulation. Looking at weekly and monthly helps to better define the trend.

    Understanding overall market conditions will take a lot of work to get straight. We can help you with specific questions.
  • markdmarkd mod
    edited August 2015
    Have you considered using the Price-Performance indicator to get a read on relative strength? There are a number of ways you could use it - compare all the stocks to one of the major indices or their etf equivalent, like SPY, QQQ or IWM, like if you were interested in AAPL you might look at AAPL:QQQ; or if all the stocks are in one sector, compare them to the etf for that sector, like XLY or XLV; or if in the same industry, compare them to the $DJUSxx index they belong to; it's also a good idea to look at the RS for the sector against the general market and the industry against the sector (see the Gatis Roze blogs about this); or finally, compare them to each other. You might look at six month, three month and maybe six week daily charts to see if they are strong over all periods, just picking up, or losing ground. Using Price-Performance, you can compare the numbers at the right edge - the highest number is the strongest stock for that time frame (between the first and last bar on the chart).

    Ideally, you want a rising trend line under the RS (Price Performance) line. It doesn't have to be above zero but that's nice. Then you want to see that there has not been big selling off the top (in other words, distribution has started), so there's not much overhead resistance; good, too if the declines from recent highs have stayed above 50% of the prior leg up.

    You could also look at the SCTR Line indicator. It's nice if it's above 70 or 80, but I think you can do well if it's trending up and there's no serious down volume recently.
  • You could also have a ranking system. For example, if one of your strategies involves trading a low RSI, then rank them accordingly from lowest to highest RSI. You could use volumn, volatility etc.
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