What to Look For When Trading

When trading, especially in the short term, there are a number of things that are very important to look at. Each security should have these three things before you trade them.

1. They must follow your trading rules. You should have a trading system with defined rules in place every time you place a trade. Obvious, this is the first thing you should look at before placing a trade. You want to see if the stock is giving you a buy or sell signal based on your rules.

2. Don’t trade stocks with earnings coming up. Earnings are announced once every 3 months. These reports can move the stock drastically in one direction or another. Trying to predict them correctly can be like trying to guess the number the roulette wheel will spin on its next turn. It is more luck then skill. Needless to say you want to avoid getting into stocks that will be giving off an important announcement in the near future.

3. Make sure the stock has a history of giving you profitable trades. I’ll be the first to say some stocks hate me. They will constantly give me losses every time I place a swing trade on them. 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 trading. Back test your system on that stock to make sure it is working there first.

4. Look at a company’s fundamentals. Fundamentals normally work well for long term plays but they are not necessarily accurate in the short term. Even so, they do still offer buying and selling pressure.

5. Take a quick look at the afterhour’s price of the security. This part is arguable but I always like to look at what the stock is doing afterhours before placing a trade. If a stock is trading at $63 by closing but is only trading at $57 after hours there may be something fishy going on and you probably want to avoid it.