How To Pick A Good Stock To Trade — The Complete Guide for Beginners

Picking a good stock to trade can be challenging. With thousands of publicly-listed companies on a single exchange, the plethora of data can be intimidating for a novice trader.

While traders have their preferred strategies and checklists to follow before executing a trade, here are some guidelines to assist you in picking a stock to trade. Besides that, we will explore how technology can assist you in processing the information on exchanges to make rational stock picks.

Firstly, traders should look to monitor the volume index of the stock they are looking to trade. The index measures the volume of the stock — how many times the stock is being bought or sold in a given time frame, usually within the trading day for traders.

A greater volume indicates a greater interest in the stock among traders. This interest could either be positive or negative and multiple events could alter the volatility of a stock.

An increase in volume would usually indicate a significant price movement is about to occur. Depending on your analysis, you could either choose to continue holding onto the stock or increase your stake in it — if you feel optimistic, or reduce your positions — should you foresee a fall in price.

Besides that, you should look to monitor the daily news for events that may cause a shift in stock prices. As the market is often forward-looking and serves as a gauge of future market sentiments, breaking news could lead to a fall or rise in the markets.

For example, upon the announcement of the democrats winning the Senate majority and Joe Biden being confirmed as the next US President, stock markets responded positively to the news. The S&P 500 and Nasdaq indexes soared to all-time highs while regional markets including Japan’s Nikkei 225 and Hong Kong’s Hang Seng rallied strongly.

Had traders actively monitored the above news and acted on the opportunity, they would have pocketed handsome profits.

Other than monitoring trading volumes and news, traders should also have robust risk management plans in place to prevent huge losses.

The focus of trading should be to preserve capital before growing it. Therefore, apart from conventional risk management methods such as setting stop losses and diversifying their trades, traders should also focus on how to risk-manage their emotions.

Suggested methods including having a trading checklist or using AI trading bots to assist in decision-making.

With the advancement of technologies and the proliferation of AI into our daily lives, we should look to leverage its benefits to help us process the swathes of data on exchanges to recommend stocks to trade.

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