Finding Stock Trading Inspirations
Finding stocks trading inspirations can sometimes be challenging. Personally, it comes in various ways like throughnews, chart patterns, industry performance, commodity related movements, etc. In this article I'd like to share with you how I came up with my trading inspiration for next week's execution. This is a routine that I perform over the weekends to prepare for trading week ahead. Being a part-time trader, I've got to do all my preparations ahead of time and only be required to spend the least time watching the market and entering my trade while I am busy at work. Usually I only spend two 5 mins in the day to decide whether or not to enter my trade and that is 30 min after market opens and 30 min before market closes. Okay so back to the main point, here's how I came to next week's trading inspiration.
Scan the Major Markets
First I start off with scanning my list of stocks in my monitoring portfolio. You can learn how to set up one here. Basically, I use yahoo finance to create a list of stocks which I can quickly scan through. I always organize the index to be on the top, so I'll get to see the major stock market movements. So from below screenshot, you can see both Dow Jones Industrial Average and Nasdaq Composite. I can draw some lines on this picture to show the major resistances and trendlines, but my eyes are usually trained to be able to visualize some critical points and that is how I do it when I just want to get a quick overview of the market. Looking at these two graphs, you can see that the stocks market has just come off the top. Dow is hitting a horizontal resistance, a double or triple top, while Nasdaq is creating a lower high. This indicates as an early sign that the market is turning around and I should be looking at shorting opportunities.
Scan My Monitoring Portfolio Stocks to get a Feel of the Market
As I scroll down my list, I will get to see an overview of all the stocks that I have in my monitoring portfolio. I do this to get a general feel of where the majority of the stocks are heading. This is to confirm that the general market is heading south and then I will start looking for opportunities to short. This screenshot below is only able to capture 3 out of the 30 stocks that I have compiled in my monitoring portfolio. However, I just want to give you a feel of how it looks like. You can see that some stocks were already down to begin with (BP), Starbucks is on a slow slide down, Caterpillar very closely mimics the DOW index. So what will I be looking for?
Search for the Right Stock to Trade
I will be looking for a stock that is closer to a set up like that of Caterpillar, since it has run up a fair bit and has started to turn around with potentially a significant room to fall further. Here's what I found. I found Chevron, which is at the peak. For convenience, I have also grouped similar industry stocks together. As you can see, ConocoPhillips is on a downtrend and BP's chart is moving sideways after a prior downtrend and has not recovered. Chevron however, has made a significant run. This can be explained due to it's good performance with still a positive EPS, while the other two are negative. However, as a industry, oil is not rosy. I will go a few more steps further to make a better trading decision.
Research my Selection
Chevron is a commodity stock and is volatile. Hence, always be reminded to check the key component that will affect the stock. OIL price!!! Oil price has been going on a free fall for a while and recently recovered from its low. However, weakness is forming again as traders are taking profit after a significant recovery and it will likely see a short term weakness. Though Chevron is the top performer out of the three, and usually I'll go for the weakest if I am to short. However, the market pressure to bring stocks down (seen from DOW index) is very strong, coupled with the likely oil price fall, will add additional pressure to oil company stocks as a whole.
Plan my Trade
Now that I have determined the stock that I will like to short, next will be to plan the trade. Apply my technical analysis knowledge with a breakout strategy.
- Set my entry point & stop-loss
- Calculate my position size
- Enter my positions into my trading platform
And I am done for the day. The entry execution is going to be automated but I still make it a habit to check the markets twice a day in case there is a gap down or erratic market movement, where I will have to manually intervene.
Hope this helps you prepare your trading week too!