I recently discovered The Trade Risk. Their weekend stock market recap comments on technical aspects of charts to evaluate the general market and industry sectors.
Today, I took time to peek into their Learning Center and stumbled across this fine post on how to find leading, i.e. strong, stocks . Here's the associated video embedded for your convenience:
The salient points for me were:
- Find the 52-week high list. This can be found on several websites, e.g. Finviz screeneror NASDAQ.
- Find tickers whose price is up significantly over a period that is relevant to your trading horizon. This might flag up promising stocks early before they hit the 52-week high list.
- Use monthly charts to grasp the bigger picture of the quality of the stock's performance.
- Compare stocks to a relevant benchmark such as a related index. This is called the Relative Strength of a stock and has nothing to do with RSI.
- Verify which industry sectors are leading and drill down which stocks are the big movers in those sectors. I'm still looking for a good free sector analysis tool. Finviz and a few other websites have some information. I just haven't taken the time yet to explore these in detail.
I think none of these screens should be used in isolation and require more due diligence. Having read How to make money in stocks by William O'Neil I see some recurring pieces of advice, which is reassuring. Also, the above parameters are more or less readily available using free scanners, which is always a plus for a cash-strapped newbie.
