Daily Chart
Before we take a look at the internal charts, we filter through many names every night that have charts that can be beneficial on a daily basis. Everyone likes to trade in their own style. Our preferred style is range/high consolidation breakouts (common among short-term momentum traders), but we also trade other patterns, including heavily sold/bought names, and names trading around key moving averages and a few others. Setting up the daily chart is essential for finding big winners*, as the profit potential is greater if it can achieve a daily chart pattern rather than just an intraday pattern.
Stock/Sector News
It is very important to know if the stocks you are looking at have received any relevant news announcements, or at least some sector news that could be the reason for the stocks’ movement. Finding stocks that have positive news/sector catalysts can help increase trading volume which can be a driving force for the movement you are looking for.
Trading Volume
Volume is the most important indicator for the short-term trader. Most short-term traders trade based on a specific chart pattern or momentum indicator. Simply put, these patterns and indicators have a hard time applying when volume dries up, or if it wasn’t there to begin with. When looking at a name, make sure the volume is at least above (ideally greater than) the relative average before making a trade.
Internal Chart
It is also important to look at the internal chart before entering a trade. Does the volume look good? Has the daily chart pattern been activated? That’s great, but if the stock has just moved up a dollar and put in a long bullish candle before you entered, you’re not doing yourself any favors (provided your profit targets and stop-loss price are considered). It can have a very negative impact on your ability to hold the trade if after buying it, you see it immediately go against you, especially if you feel you might have missed the short move. In fact, it helps if you can enter your trade on some kind of pullback or consolidation before moving in.
Broader Market Sentiment
It seems reasonable, but if the market is crashing, it may not be wise to play in your favor on a “blowout” long trade. Thanks to high-frequency trading (HFT) and programmatic trading, stocks are more interconnected than ever, and if the broader market is working against you, it could affect (not always) your chances of winning. Try matching the market sentiment timeframe with the timeframe you expect for your trade.
For example, if you are looking for multi-day/week movement, it might not matter much what the market is doing that morning, but you might care how the market behaved during the prior days/weeks before the trade. Conversely, if you are looking for day trading only in the morning, you might want to ensure that the market is green and/or moving up for your long trades and red/moving down for your short trades.
There you have it. These are the five factors to watch in every trade you make. Definitely more common sense than rocket science. To make things easier on yourself, filter some stocks before and after the market that have chart patterns matching your trading style, along with some relative volume characteristics. You should also be aware of the stocks that are in the news that day/week.
We will be
We’d be lacking in honesty if we said that we only execute trades that align with those five stars. However, we wouldn’t be lying if we said that our biggest winners and best win rates come from those that do.
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Source: https://www.thebalancemoney.com/how-to-find-best-stock-market-trade-opportunities-3140798
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