There are three primary skills you should strive to master when it comes to picking winning stocks:
As you advance in your training and knowledge, you will find other tools like Fibonacci Analysis that further support your forecasting; however, chart patterns, candlestick patterns, and indicators are your foundation.
Chart patterns give you a little broader insight into the movement of a stock. You can learn several patterns to assist your forecasting, and you can click here to download a free set of chart pattern flashcards.
One example of a popular chart pattern is the Head and Shoulders pattern. Can you see the head and two shoulders on the chart on DE below? This is a bearish signal, and true to form, the stock price fell almost 20% after confirmation.
While chart patterns give us a broad perspective of price movement and can help upcoming forecast moves, candlestick patterns give us a more current perspective on trader sentiment. Candlesticks tell a complete story of what happened with the price by showing the Open, High, Low, and Close of the trading session graphically. This information assists with timing your trade entries and exits better, and you can click here to download a free set of candlestick pattern flashcards.
Using the same chart as before, notice the Head and Shoulders pattern was further confirmed with a bearish candlestick pattern called a Bearish One Black Crow.
The final component, indicators, helps you make sure something isn’t lurking completely undetected underneath the surface! Your indicators will help confirm or contradict your broad chart pattern perspective and the trader sentiment represented by candlestick patterns.
Look for confirmations. Any contradictions should be a strong warning to proceed cautiously or abandon the trade altogether. Sticking with our example of DE, notice what the stochastic indicator was doing when the Head and Shoulders pattern showed up, along with the Bearish One Black Crow. The Stochastic indicator was above the over-bought line and just starting to turn back down. This was a confirming indication that bearishness was on its way!
Indicators are excellent at confirmation, and here are some of the best to use:
Analysis is the primary tool when selecting a winning stock. But as mentioned at the beginning of this article, there are certainly some known areas of the market to stay away from. Generally speaking, the following guidelines will help you select quality stocks to trade:
And if you want some past stocks recommendations from 2020 to look at, you can click here to review TradeSmart University’s top 150 stocks which we complied a few years ago.
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