How Do I Know What Stocks to Trade?

Candlesticks pattern: The use of candle sticks to predict price movement is a recurrent technical analysis decimal. It enjoys wide acceptance in the crypto, stock, foreign exchange (Forex) and derivative markets. Using the candlestick movement pattern and embedded information including opening and closing prices, highs and lows, traders can identify the best stocks to trade. Candlesticks come in different sizes and colors depending on the prevailing market conditions including trade intensity. A long candlestick signifies intense trading of the stock it represents and vice versa.

Chart patterns: in stock trading, chart patterns refer to a group of candlesticks and the patterns they form over a period. These patterns give broad insight into prevailing market conditions. Chart patterns come in different forms including the cup and handle, double top, rounding bottom, head and shoulders etc. Analyzing chart patterns can be quite herculean, using technical analysis tools and software is strongly recommended. Here are the best technical analysis tools and software for a profitable trading session.

Indicator signals: Stock broker platforms with indicator signals notify users of market trend, volatility, momentum, for the best trading decision. In recent times stock broking platforms have integrated AI functionalities into their systems to strengthen their indicator signals capacities.

Volume spikes: Just as its name suggests, volume spikes refer to a significant but sudden surge in trading activities signifying a renewed confidence in a stock. Volume spikes technical analysis enables traders to leverage a sudden price for profit.

Industry: Companies and their stocks do not exist in a vacuum. As industry players, they are affected by industry-specific growth accelerating or limiting variables, including regulations and competition. For instance, a government regulation banning the sale of non electric vehicles (EVs) will positively affect the EV industry and their stocks. Keeping a tab on industry will shed light on the viability of their stocks.

Management team: A company's growth trajectory is determined by its management team. The fundamental criteria for identifying a good stock to trade stipulates picking stocks from companies with a competent management team with a track record of excellent performance. While an average stock trader may find it difficult to ascertain the competence of a corporation's management team, a simple web search of the management team may unravel their competence.

Corporate governance: Companies are duty-bound to deal fairly with their shareholders. Examining a corporation's corporate governance policy gives you a hint about its commitment to effective communication, transparency and fair play. Maximizing shareholders’ value is the prime duty of companies’ directors and their management team. They are required to adhere to the industry's best corporate governance standards to maintain shareholders' confidence and value.

Prevailing economic conditions: Fundamental criteria for selecting stocks recommend a surface-level analysis of a country’s prevailing economic conditions before trading the stock market. Stocks from a stagnant, receding economy may not yield the desired returns and vice versa. It is best to examine the economy's inflation rate, Gross Domestic Product (GDP) per capita, economic growth rate and similar factors before buying stocks.

Income statement: A company's income statement answers the basic question, is the company making a profit over a period? A profit-making company stock is much more likely to be profitable than a loss-making one.

Balance sheet: A balance sheet is much more comprehensive than an income statement. It contains other growth determining indices including liabilities, assets, and shareholder's equity holding. Liabilities refer to the company's debt obligations. The asset represents the company's inventory, banked cash, building and machinery.

Commissions: Stock brokers charge a commission for granting access to the stock market. Commissions vary from stocks to stocks and broker to broker. It makes perfect sense to consider the charged commission before choosing a stock to trade.

Short trading: This trading strategy involves selling stocks in anticipation of a price decrease. The aim is to repurchase upon the price decrease. This allows you to maximize price movement for profit.

Leverage: Leverage allows you to trade above your trading capital by “borrowing” from your stock broker to maximize profit. Brokers with leverage facilities can effectively remove or limit capital constraints to trading the stock market. As much as leverage allows you to maximize profit, it is a double-edged sword that can be disadvantageous if you trade at a loss.

Market Liquidity: Stock market liquidity rate is best described as the relative ease or otherwise of converting stocks to cash. You might want to consider easy-to-convert-to-cash stocks over the not-too-easy-to-convert-to-cash ones as it makes it easier to exit the market and recover your capital and profit.

Volatility: While the stock market is volatile, the degree of volatility more often than not depends on the stock. It is best to have a preference for less volatile stocks over the more volatile ones. It makes price predictability for profit easy.

Share price: Granted that some stock brokers allow you to buy fractional shares, why opt for fractional shares when you can buy a full stock? The more affordable stocks are, the bigger the quantity you can buy and the bigger the profit.

If you are trading long term it is best to buy stocks from sectors that are acting stronger and performing better than the market on average.

Monitoring news and trends gives you deep insight into the market, allowing you to trade from a knowledgeable position which can minimize loss and maximize profit.

Stock trading comes with the risk of loss. It is best to analyze your trading position vis-à-vis risks and profit. Do not be carried away by the allure of profits.

Stay focused: While spreading your stock tentacles allows you to hedge against loss in some instances, it may be detrimental in the long run as you might lose focus and begin to chase shadows.