\n<\/p>\n
\n\t\tOpinions expressed by Entrepreneur contributors are their own.\t<\/p>\n
Trend watching is big business. \u201cInfluencers\u201d try to start trends or at least jump on them early. Day traders are just as passionate about spotting trends, but our timeframe is very much shorter, as in which stocks will take off today<\/i>.<\/p>\n
Some traders don\u2019t focus on trends: They\u2019re known as \u201ccounter-trend\u201d traders. These folks will do fundamental analysis by scrutinizing financial reports and may conclude that a stock is in for a beating, so they short it. Others will wait for a stock to drop low enough that they conclude it\u2019s a bargain and should soon turn around. They hope.<\/p>\n
I\u2019m the opposite \u2014 I\u2019m a momentum trader who wants to see that trend already rolling before I jump in. I focus on technical analysis<\/a>. On any given day, there is no shortage of potentially trending stocks; social media and trading chat rooms are full of tips. We know that most of them never pan out. So what have I learned after taking more than 25,000 trades about how to identify stock trends worth my while? I have three parts to my answer.<\/p>\n Sports teams will scrutinize \u201cfilm\u201d about their upcoming opponent in a playoff game, looking for their habits and quirks. In a sense, I do the same thing with stocks.<\/p>\n Take \u201cformer runners\u201d for example. These are stocks that in the past have experienced massive momentum, ripping up 300%, 400% or more in a very short time. I make note of these stocks because they made an impression on many traders\u2019 minds: Some traders made money and want to do that again; others didn\u2019t hop on the bandwagon soon enough, have FOMO now, and want to be extra ready this time around. Either way, the result is that former runners are highly susceptible to breaking news.<\/p>\n I will also make note of stocks that were the subject of recent IPOs or reverse stock splits. In the latter case, a stock might exchange two shares at $3 for one share at $6. This drastically reduces the number of available shares and sometimes<\/i> results in ripe conditions for a profit.<\/p>\n I pay huge attention to \u201cnews catalysts\u201d every morning. These are announcements of new drugs being approved by the FDA, major acquisitions and activist investors taking a big stake in a company, among other news. It doesn\u2019t matter how fast I am at the keyboard: By the time I\u2019ve read this news, programmed traders on Wall Street have already placed their trades microseconds after the news hit. This is known as an \u201calgo spike\u201d.<\/p>\n As the name implies, often these stocks will spike and then pull back. While this is happening, I\u2019ll be reviewing whether the stock meets my other criteria for buying. One of those is the stock price. I usually prefer to trade stocks that cost between $3.00 and $20.00 per share. Sure, Tesla may have regular news catalysts and plenty of trader attention worldwide, but it\u2019s much harder for a share that costs $350 to move as quickly as one costing $3.50.<\/p>\n I also want to see a stock that\u2019s up at least 30% over yesterday\u2019s close. I\u2019m a momentum trader, and 30% is a minimum, given how some stocks will rip up hundreds of percent in a trading session. Then I want to see today\u2019s volume be up at least 500% over the average \u2014 another sign of momentum. Finally, I look for stocks with fewer than 10 million shares available to trade. These criteria are all quick to calculate, which is fortunate because that\u2019s important for my third stage:<\/p>\n Professional day trading is not about fast gaming reflexes; it\u2019s about having the knowledge and emotional readiness to act quickly, effectively and decisively. A stock needs to meet my criteria, but as odd as it sounds, I have to meet some criteria as well:<\/p>\n Some days, I allow myself just a little basking if I\u2019ve traded within my guardrails and done well. Other days, I\u2019ll acknowledge that things didn\u2019t work out, in which case there\u2019s one last thing to do before shutting down my workstation: learn from what went wrong and how I should trade differently tomorrow.<\/p>\n Beating myself up is time wasted; preparing to do better tomorrow, with a new crop of trending stocks, is time well spent.<\/p>\n<\/p><\/div>\n Trend watching is big business. \u201cInfluencers\u201d try to start trends or at least jump on them early. Day traders are just as passionate about spotting trends, but our timeframe is very much shorter, as in which stocks will take off today<\/i>.<\/p>\n Some traders don\u2019t focus on trends: They\u2019re known as \u201ccounter-trend\u201d traders. These folks will do fundamental analysis by scrutinizing financial reports and may conclude that a stock is in for a beating, so they short it. Others will wait for a stock to drop low enough that they conclude it\u2019s a bargain and should soon turn around. They hope.<\/p>\n I\u2019m the opposite \u2014 I\u2019m a momentum trader who wants to see that trend already rolling before I jump in. I focus on technical analysis<\/a>. On any given day, there is no shortage of potentially trending stocks; social media and trading chat rooms are full of tips. We know that most of them never pan out. So what have I learned after taking more than 25,000 trades about how to identify stock trends worth my while? I have three parts to my answer.<\/p>\n<\/p><\/div>\n1. Pay attention to the conditions that make stocks ripe for significant trending<\/h2>\n
2. Know how a hot stock takes off, and whether it meets my criteria<\/h2>\n
3. Be completely ready to take advantage of the right opportunity<\/h2>\n
\n
Key Takeaways<\/h2>\n
\n