Concentrating On Trending Stocks

Discussion in 'General Trading Discussion' started by TraderAnalyst, Aug 9, 2019.

  1. TraderAnalyst

    TraderAnalyst Active Member

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    In Volatility , traders must concentrate on trending stocks as their rate will be increased . So there is a big opportunity to make good profit.
     
  2. J_C_Anderson

    J_C_Anderson Senior Investor

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    It is very important to focus on trading stocks, also often called "Stocks in play". They offer best possible risk-reward ratio and exceptional profit potential.
    There are several ways to identify such stocks. The main criteria are the following:
    - Strong catalyst - it should be something important happened to the stock to make it move substantially higher or lower. It could be earinings report, news or something other event leading to changing fundamentals. For example, a company may enter new distribution agreement or subcontract huge consigment of goods increasing the backlog. Another specific news category includes news related to approvals: FDA or EC approval, Orphan Drug Designation or information on positive study results (especially Phase 3 - clinicla trials with real patents often followed with the submission of marketing application). Such news work great for biotech stocks. The main idea is that the catalyst should entirely change the situation in stock.
    - Volume - if other traders spotted the catalyst too, the volume would be eleveated. As usual, you should look for 2x RVOL or higher. In most of the cases you would be able to see it during extended hours (pre- and afterhours).
    - Gap - news almost always cause price gap. It is the best sign of attention paid by other traders. At tha same time, it is important to be aware of overbought/oversold situation since they can turn into strong pullback instead of trend movement. That is why each trader should perform his own rigorous analysis and evaluate the important of the catalyst.
     

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