There’s nothing more exciting than finding an undervalued stock and seeing it burst out of nowhere climbing in value 100 percent or more in a couple of weeks. Some stocks can move up to 1000% in a year and…. Even after the stock market crashed in 2000, some stocks still have gone up 500% or more annually.
So how can we find these? Well first let me say that there’s not any way to know which ones are likely to double or triple in value. If we knew then we can literally”bet the farm” on the trade.
The major thing we could do as swing traders and position traders is to uncover stocks that have the potential for gains based on specific technical parameters located on the graphs. There’s not enough room in this guide to go into depth on the technical analysis of stocks, but what I will do is share with you the initial step in sifting though the thousands of shares which trade every day.
One of the simplest ways to decrease your list of shares down is to use a stock scanning software such as”Stockfetcher.com”. What it enables you to do is program in almost any criteria you want and then it will automatically spit out a list of stocks that meet those specific criteria.
Allow me to give you some specific examples…. For starters say you just have a little account of $10,000, you should not be taking a look at expensive stocks in the $50-$200 range. This is because when they’re too expensive, you can not buy many shares. So, the first thing I would do is tell the software to give me a list of shares under $20. I’d also have it display out stocks less than $2 as I do not wish to trade penny stocks.
Secondly, I only need a list of shares that trade at least 500,000 shares every day. The more volume the better as there’s more liquidity. This means it will be much easier to buy or sell shares at any time. Stocks with higher volume have much less probability of being manipulated by market makers and market insiders.
Third, I want stocks with a whole lot of volatility. Volatility is the thing that causes rapid movement over a brief time period. Old blue chip stocks like Caterpillar, Ford or Kellogg’s do not move that quickly and have very little volatility. To ensure you’ve got volatility, I’d tell the software to locate just Nasdaq stocks. Because this includes of mostly tech stocks, the chances are much higher of powerful and quick moves.
Fourth, if the sector is in an uptrend then I would like to be a buyer so that I could program in the next… Search for shares with a relative strength of 90 or above. This will make certain that the stock has lots of up market momentum. You might even add an extra filter to reduce down the list more. For example: Tell the software to search for stocks that made new highs over the previous 90 days.
You can use the exact opposite approach to short stocks in a bearish market. Start looking for stocks with a relative strength of less than 10 and made new highs over the previous 90 days.
What’s really cool about inventory scanning software is that you can do the job in less than a minute. With this software the job is dull and slow. As soon as you run the scan you need to have a rather small collection of shares to examine closer.
The last step would be to examine every stock for specific technical analysis patterns which may result in explosive moves. However, as I said previously there’s just not enough space to go into detail here.
Hope this gives you some food for thought and points you one step closer to your targets.