Stock Picking: How to Pick Ready-to-Move Stocks by Doug Newberry

Not all stocks have the potential to move. That's why it's important to be able to filter out stocks that aren't likely to move right away. After all, stock trading is about making money and it's difficult to make money investing on stocks that aren't going to move anytime soon.

If liquidity is what you're looking for, high priced stocks may initially draw your attention. You may appreciate the trading volume of pricy stocks. However, such stocks are less likely to have the kind of price volatility you're looking for.

Keep in mind that with penny priced stocks, the price may be too low to have a trade volume that can support profitability. In general, keep in mind that the lower the price of the stock, the more difficult it is to trade for profit. The price of these stocks may be all over the place, which has the consequence of stressing out most traders as they watch their stock price vary all over the map.

Use the Goldilocks rule when trading stock: some are too cheap, some are too expensive, but the stocks that are most likely to move are just right. Making sure that the stocks you're trading are in this range will ensure a return on your investment in a decent amount of time. Where does this Goldilocks range hit? Trading is different for everyone and this is true for finding your ideal range as well.

Nevertheless, a good stock picking price range can be as high as 20 dollars or as low as 5 dollars. If the stock you're interested in is within that price range you're on the right track.

Another important thing to check for is the trading volume of the stock that interests you. The stock trade volume should be at the highest 2 million and at the lowest 100,000. Keep this in mind when searching for stocks that are likely to move.

The problem with stocks that are ready to move is that sometimes they jump around a lot. In order to make sure you still make a profit with your stock, watch it as it moves in the few minutes after the market opens. Often, the high of the day will be set early.

If it looks like this applies, you can try having a sell limit just below the high of the day. Of course, if it looks like the price is approaching the high of the day with good momentum later on, you should consider raising that limit price. You might also consider setting the stock's buy stop right below a particularly significant low price.

This is a much better technique than simply watching the stock constantly with your finger on the sell button. Get some practice finding the Goldilocks sweet spot and you'll soon find yourself trading in highly movable stock!

About the Author

Doug Newberry is a Director at Investing Systems Inc., which develops financial tools and systems for stock picking for many different kinds of traders and long-term investors.