3 Signs a Stock Is Worth Trading

04/24/2012 4:05 pm EST

Focus: STOCKS

Harry Boxer

Author, The Technical Trader

Daytraders should target stocks that exhibit strong volume, decisive price action, and clear chart patterns, says Harry Boxer, who uses all three when choosing which stocks to trade each day.

One of the things that traders always want to know is what to trade each day, and that’s what we’re talking with Harry Boxer about. So Harry, how do you decide what you’re going to trade every day?

Good question. I’ll look at pre-market news, and the Nasdaq and New York pre-market gappers. I want to see stocks that are up the most percentage in pre-market activity to get an idea of what stocks may be gapping that day and on what kind of volume.

Also, I’ll gauge the news and whether it’s significant—not just an upgrade, but maybe a major contract or a biotech approval or something of that nature. Then we’ll watch the opening action, and I watch for gaps. I watch to see if a stock opens at a certain level, runs up, and then comes down to that level and doesn’t break it.

If it starts to move up again, then we’re likely to be trading it, because it’s what I call a “gapper that holds support,” and that could trend up all day after that.

That’s one way I identify, but it’s a combination of that and looking at the patterns; the news that may affect it; and the volume is important.

See related: Get Prepared Like a Pro

TeleChart 2000, or TCNet, has something called Volume Buzz, which is the most amazing indicator I’ve ever seen, because it tells you at that point in time what the volume is compared to what it is historically at that time of the day. It’s amazing.

So in the first 15 minutes, a stock may trade 3000% more than it normally does, and that will tell me where money is flowing, and it adds credence to my picks. I’m more likely to keep that on my hotlist during the course of the session and continue to review those charts and those patterns that may be developing for additional set-ups.

See also: How to Get More with Less Indicators

Now speaking of those patterns, are you doing some homework the night before to see what patterns are in longer-term charts, or do you just want to see the pattern on that one-minute, five-minute chart?

In the morning, I do have a list of stocks from the prior day, usually stocks that I have put out on video. I have a nightly video called “Charts of the Day” that’s free to the public. When you go to that, you’ll see ten or 12 stocks.

Those are on my list immediately, because if stocks start looking good on a closing basis, they may very well follow through the next day. And that’s what I’m looking for, follow-through moves, whether they are gaps or just price follow-throughs.

I think one of the problems some traders have is that the universe of things to trade is so large now, so how do you whittle it down? Do you want ten stocks; do you want 20; what’s a good group?

Some days, I’ll have six to eight stocks; some days twenty. I just put out the stock ideas that look the most promising early on, and if they fail, they’re eliminated from the list, and we’ll talk about something else during the course of the session.

But, if you pick any of the stocks that fail, they should be failing quickly, and you should be out quickly with a small loss. Don’t let a little loss turn into a big one.

So you’re looking for things that are the biggest gainers right away, i.e. in the first five minutes?

I want the biggest volume percent gainers and price percent gainers in the first five to 15 minutes. At that point, I’m looking at patterns to see how they’re developing—where they’re holding immediate support.

Sometimes they’ll gap up and they’ll come down in a falling wedge or something. Watch the wedge for a breakout, but don’t anticipate, because that thing could keep going down all day, especially for biotechs that pop and drop a lot.

If you’ve got several that look great, are you trying to whittle it down to find the best opportunities?

Yes, I am, usually, but I will, in my hourly videos, go over all the charts that we’re following, and if you hear me not talking about them later in the session, it’s because I’m no longer interested.

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