Find the Best Stocks to Trade
08/03/2011 7:45 am EST
Veteran trader Fausto Pugliese discusses his proven methods for finding good stocks to trade on an intraday basis.
There are thousands of securities you can trade each day as a trader, so how do you decide what to start with? Our guest today is Fausto Pugliese; he is going to talk about what he looks at to decide what he is going to trade that morning.
Fausto, what do you start with; is there a list or a basket of stocks that you like to work with each day?
Well, we don’t have a basket of stocks. I look more at the top 20 list or the more active list.
A lot of these direct access companies have these real-time filters that actually will scan the market for you.Some of them can be extremely overwhelming, but my all-time favorite is just working with the percentage gainers and losers.
Often times I have seen traders try that, and the stock has already moved its full amount by the time it gets onto that list. So how do you find within those stocks what you are going to trade?
Well, you know what, that is true but it is not true. Yeah, they gap up a lot and they make a move, but you have to understand the market is not closed until the market closes at 4 pm Eastern standard time; so if the stocks are continuing to move, they will continue to be very volatile.
So yes, there are a lot of stocks on there; they probably gapped up; they probably had their big move, but not necessarily. There are a lot of stocks I find out there that you can still continue to trade.
If you are trading the ones that gap up, are you looking for a mean reversion kind of system, where you are looking for it to fill that gap or come back to some sort of average?
Well the way I teach my students is that there is only a certain amount of money you really need to make. As long as it makes that small move, that is all you are really looking for.
So I don’t really look to maximize the whole movement of the stock. If the stock just kind of makes its move, that makes your day’s pay, which I more or less teach people that is all they really need.
I specifically look for just the support and resistance levels; just draw a trend line, and the key is just to be patient. More importantly, like you have seen me trade before and show you exactly where the big block orders are, because those are going to be more of your major support and resistance levels.
On those percentage gainers and losers, are you looking at the news, at what has affected those at all, or is it purely technical?
Just purely technical; the news doesn’t mean anything. I don’t know how to interpret the news; you probably don’t know how to interpret the news; we don’t know if it is good or bad. I have seen companies that came out with horrible news and the stocks seemed to be up. It is more or less just momentum.
What does that momentum look like on a chart for you?
Well the momentum on the chart is obviously looking at the total view, looking specifically at where those big block orders are where people are positioning themselves to buy the stock, and buying it right before it hits that big buyer out there.
I place my bids out there and just kind of ride it at that support level, because that’s where those big buyers are. Then I just take my small little profit that I am looking to make for a day’s pay.
So kind of stepping in front of that wave, it sounds like, for a little bit of profit?
That is all you are looking for.