With time and experience, most day traders are able to develop strategies that work for them. However, there are certain factors that all talented traders consider when they analyze stocks. By being aware of these factors and knowing why they matter, you will have an easier time achieving ongoing success.
- Industry or Sector – Always take the industry or sector of the stock into consideration. How are other stocks in the same sector or industry faring? This will provide clues about what you can expect.
- Key Levels – Look for key levels that can be used to make risk/reward trades. Start by noting the stock’s high and low for the day, but make sure to check for any unusual movements as well.
- News – Is there some rhyme or reason as to why a stock is in play or experiencing volatility? The answer sometimes lies in the news, so find a reliable news source for the stock that you’re analyzing and use it to get a feel for the big picture.
- Relative Strength – Consider how the market is performing versus how the stock is performing. Does the stock tend to follow right along with the market? Does it rally alongside it or stay put? When the market sells off, does the stock drop? Being aware of this can prove to be truly invaluable.
- Trend – What kind of trend is the stock currently exhibiting? Is it on an upward trajectory or a downward one? Is it static? Don’t just consider the trend for the current day; look for trends across longer periods of time too. Make notes of such trends, and you might be able to find trends within trends as well.
- Volatility – Avail yourself of stock charts at every turn and use them to stay abreast of any volatility that’s occurring with the stock in question. When volatility happens, how long does it last? Does the stock tend to exhibit the same patterns under such circumstances?
- Volume – Analyze the past performance of the stock to see how many shares are typically traded in a day. How many shares have been traded today? You can get a sense for whether institutional participation is having an effect by considering the current relative volume of the stock versus its average volume.
As you grow and become more experienced as a day trader, you may pick up additional techniques along the way. Furthermore, you may find that some factors are more important to certain stocks than to others, and you can use this knowledge to make more profitable trades.
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