While I was cycling at the gym yesterday, Irvan, one of my Red Hot Storm Trader subscriber's introduced himself to me. We chatted about how he started trading and his passion for trading the markets.
As I was about to leave, he asked a very good question,
"How do I choose what stocks to buy?"
I answered back with two words, “Healthy and Blue”.
I'm sure right now, you have the same puzzled look on your face that he had.
But don't worry because in the next two minutes, I'm going to tell you everything I told Irvan so you know how to choose winning stocks on the stock market.
Let's go.
Healthy
The first thing I look at when I choose a stock to buy is, how healthy the chart looks.
This chart is as sick as a chart gets!
There are three things that tell me the chart is sick…
The first thing I look at when I choose a stock to buy is, how healthy the chart looks.
This chart is as sick as a chart gets!
There are three things that tell me the chart is sick…
#1: Thin volume, fat chance of being stopped out!
You can see that the price is all over the place jumping up and down vigorously.
This means that the volume of the stock is very thin which shows little interest with the buyers and sellers.
As a general rule, I’ll only look to trade stocks with over 100,000 shares traded on average per day… Anything less and you’re more likely to find a chart where the price is all over the place!
#2: It’s not the size that counts!
The candlesticks are either huge or tiny, which is not good.
You see, this tells me that the buyers and sellers are completely clueless where there’s no confidence on where they want this stock to go.
#3: No trend, no trade!
There are no clearly defined trends which means which means, the stock can go anywhere.
No matter how robust your trading strategy is, without a trend, you’ll be stopped out when a stock moves erratically.
And that's why I don’t choose stock charts that look unhealthy.
Next, look at the chart below and tell me…
This looks like a healthy chart don't you think?
You can see that the uptrend is clearly defined, so you’ll know where the stock is more likely to go.
There’s also less jumping up and down with the candlesticks, so you’ll have a much lower chance of being stopped out by buying this stock.
And because there are no big jumps in the stock, should tell you that there is high volume of buying and selling.
So buying a stock with a healthy looking chart means, you’ll be able to follow the trend and not have to worry about all of the high volatility while you’re in your trade.
Finally, to make your life easier to choose winning stocks…
Trade only blue stocks!
If I were to try to define Blue chips it would be this.
Stocks that are the most popular, established and heavily invested stocks on the South African JSE.
They are the big daddies of the JSE which are in top 40 companies listed.
Here is Investopedia’s definition as well…
“The name "blue chip" came about because in the game of poker the blue chips have the highest value.
Blue chip stocks are seen as a less volatile investment than owning shares in companies without blue chip status because blue chips have an institutional status in the economy. Investors may buy blue chip companies to provide steady growth in their portfolios.”
So now you know exactly what I look at to choose high probability winning stocks on the stock market…
Healthy and Blue!
Always remember,
Wisdom yields Wealth
You can see that the price is all over the place jumping up and down vigorously.
This means that the volume of the stock is very thin which shows little interest with the buyers and sellers.
As a general rule, I’ll only look to trade stocks with over 100,000 shares traded on average per day… Anything less and you’re more likely to find a chart where the price is all over the place!
#2: It’s not the size that counts!
The candlesticks are either huge or tiny, which is not good.
You see, this tells me that the buyers and sellers are completely clueless where there’s no confidence on where they want this stock to go.
#3: No trend, no trade!
There are no clearly defined trends which means which means, the stock can go anywhere.
No matter how robust your trading strategy is, without a trend, you’ll be stopped out when a stock moves erratically.
And that's why I don’t choose stock charts that look unhealthy.
Next, look at the chart below and tell me…
This looks like a healthy chart don't you think?
You can see that the uptrend is clearly defined, so you’ll know where the stock is more likely to go.
There’s also less jumping up and down with the candlesticks, so you’ll have a much lower chance of being stopped out by buying this stock.
And because there are no big jumps in the stock, should tell you that there is high volume of buying and selling.
So buying a stock with a healthy looking chart means, you’ll be able to follow the trend and not have to worry about all of the high volatility while you’re in your trade.
Finally, to make your life easier to choose winning stocks…
Trade only blue stocks!
If I were to try to define Blue chips it would be this.
Stocks that are the most popular, established and heavily invested stocks on the South African JSE.
They are the big daddies of the JSE which are in top 40 companies listed.
Here is Investopedia’s definition as well…
“The name "blue chip" came about because in the game of poker the blue chips have the highest value.
Blue chip stocks are seen as a less volatile investment than owning shares in companies without blue chip status because blue chips have an institutional status in the economy. Investors may buy blue chip companies to provide steady growth in their portfolios.”
So now you know exactly what I look at to choose high probability winning stocks on the stock market…
Healthy and Blue!
Always remember,
Wisdom yields Wealth
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