Due Diligence and Homework

To be successful in stock trading you absolutely have to do your own due diligence and homework. In our view, interpreting stock charts on the daily scale are the foundation of understanding supply and demand in stocks. Other things you may include in your nightly due diligence checklist include keeping abreast of important news events such as economic indicator reports, Federal Reserve meetings, earnings announcements, and reviewing your stops on any current holdings. You need a game plan for every trading day and if you don’t do your homework, you will not have a game plan, and without a game plan you will have no edge. It just is not worth trading if you are not willing to do the work needed to be successful.

Keeping an eye on the various sectors and markets to gauge their strength and weakness will give you confidence in your trades. For example if you are trading in financial stocks, watching key support and resistance levels in the XLF will let you know if you should be long or short. If XLF is breaking out of a nice base, your long trades in GS will most likely yield positive returns. If OIH is leaping out of a bull flag, you can be confident that your long trade in RIG will also generate a good return. Meanwhile if you notice that the QQQQ is plunging through the neckline of a head and shoulders topping pattern, holding short AAPL will be a viable trade. Watching how all the pieces of the stock market puzzle interact with each other will help in making good trading decisions. This will help you to be prepared and able to start your trading activity each day knowing you have done all you can to improve your edge, rather than just turning on your computer and trading stocks at random.

At Big Moving Stock, we have set up a system where you can easily scan the most important stocks and study their charts quickly. A good first step is to take a look at the most actives page. This is where the big money is flowing. When you are viewing a particular stock, we automatically calculate the current volume in relation to average volume and provide an updated rating on that stock of neutral, strong, or weak. If you see what looks like a bull flag, and also see that we are giving it a strong rating, this means the stock is rising on above average volume. The pattern is right (you see a bull flag), and the action is right (it is going higher on above average volume); this is what to look for in stocks you are long in.

Now you can head on over to the biggest advancers page. What do the charts look like for these stocks that are going up by the biggest dollar amount in the stock market? Are they coming out of a second or third stage base? Are they just beginning their run or are they extended at the end of a parabolic curve? Are they near support or bouncing up against resistance? Do the same process for the biggest decliners. What stands out to you as you look at the chart? You are looking for correlations and patterns between what shows up on the daily chart, and how the stock is behaving. The more you practice this exercise, the easier it will become for you to find the stocks that are ready to make a big move using chart patterns on the daily scale. The ideas presented here are designed to be used for short term swing trading where positions are held between two weeks to two months. A different approach is needed for day trading which we do not cover or recommend.

There are a multitude of techniques to use which can yield success in the stock market. We have covered some of the basics and what we have found to be a useful starting point for your own financial due diligence here. If you put the work in and never give up, you will find success.