When I began trading for the first time, I didn’t know what quality trades were, like many other traders. We hear that we should go the the Top Gapper list of our scanners and trade whatever is hot at the moment. Don’t have me misunderstood, there is nothing wrong with looking at the Top Gapper list because i love that list. However, as a new trader we are often not taught how to decide which stocks out of that scanner list, or any scanner list, is worth trading and which ones are pure garbage.
This led to me over-trading because I was not excluded any stocks based on any criteria that I had set for myself. I didn’t have a list of requirements a stock had to meet before i decided to trade it, or even consider trading it. This led to some good trades on some stocks, but terrible trades on other stocks. To the point where if those same opportunities came my way right this moment, i would ignore 75% of those stocks i was trading as a beginner.
I believe some of the major reasons why a lot of traders don’t necessarily focus on quality trades are..
#1) Quality trades are often seen as boring. When new traders think of quality trades they often think of stocks like AMZN,GOOG,TWTR, for example. What I mean by quality trades, are trades you take on stocks that have
A) Good Volume (To be able to buy and sell quickly and easily)
B) Tight Spread (Where the bid price and the ask price are only a 1-5 penny difference
C) Good Chart Pattern/Uptrend/Downtrend/ Dip Etc
D) Good Fundamentals (Making sure the stock most likely won’t go bankrupt overnight or lose 25% of its value due to an offering for example)
E) Good Float Size ( I typically don’t like huge float because of how much volume they require to put in decent sized moves)
F) Good Daily Trading Range ( Trading with a range of , for example, $2 vs trading a range of $.20 cents
Those are just some examples. There are more points you can make to choose your own requirements
#2) It takes time to actually look and find stocks that meet your criteria, ahead of time. This is another big reason why people don’t choose quality stocks to trade. Its much easier to get out of bed and open your laptop at 9:15 Am and try and trade what you you’re most likely unprepared for. However, doing this doesn’t mean you will be profitable, in fact I believe it will decrease your chance of being profitable. The best traders I know routinely do night scans to try and prepare for the next day. This gives them the advantage because they are looking at setups they assume will be in play the next day. This way, you don’t have to go scrambling for stocks to trade. You can sit back, relax, and let your trades come to you. But, thats not all..
#3) Trading quality stocks is not just about the stock, its about having a quality plan as well. Not only do those professional traders do nightly scans, but they have a plan in place so that they are prepared the next morning if one one of there stock picks move in their favor. Think about how much easier it is to see a stock in the morning moving in the direction that you want , and you put a plan in place the night before. Its like you playing on a basketball team with all random guys, no chemistry, no roles. Opposed to you playing on a team where everyone knows there role, you have studied the plays, and you are familiar with each other. Guess who has the higher chance of winning?