Trading Beyond Charts
From our ChartSeeker page at TheEquitiesRoom, you can see that we like to use charts as a basis for our swing trade opportunities. However, charts alone are not the only thing we look at when considering a trade. The following is a list of other components which helps us both decide whether to make a trade, and figure out what our price target and stops are.
It is important to know what sector your stock belongs to . Also, it helps to look at and know its peers within that sector. Comparing its relative strength within the sector can help you make the right decisions when it comes to entering a trade and/or selecting the right targets and stops.
As a general rule, “in play” lower float stocks will tend to have wilder swings than those that are widely held and have larger floats. Knowing and being comfortable with the mkt cap and float of a stock is crucial in selecting the right targets and stops.
Was there recent news on the stock you are looking at? Did it recently announce earnings? Is it going to announce earnings soon? All of these questions should factor in to your decision to put on a swing trade.
What is the recent volume activity telling you? Especially when trading breakouts (we do), high relative volume is important. By the same token, lower relative volume can mean that recent chart movement may not be able to be trusted.
What is the tone of the broad market? Is your trade with or against current broad market trends? You should be aware of these things before you make a trade so that your sentiment and attitude toward a trade doesn’t trade dramatically if there is a shakeup in the broad market trend.
We make sure we’ve addressed all of these issues before we make a trade. Charts are what gets us interested in certain names, but that is not where our work begins and ends.