How to Find Stocks to Trade

A question I get often from traders is how do I find a good stock to trade, I get this question from inexperienced an experienced traders.  It's a good question because even when I started trading I remember staring blankly at a screen of a list of stocks and asked myself "how am I supposed to trade all of these?"   But the process of finding stocks is about formulating either an idea, method, or opinion about what you want to trade.

I am going to go with a common process, not the only process, that I use to find stocks I want to trade and then in future articles get into other ways to find stocks.  My method and process is pretty straight forward approach to finding stocks.

1.  I have to know what I am trading.  I generally trade options for the most part so at the very minimum I choose a stock that has high trading volume and the price of the stock is generally trading  above $20.  This step insures I don't get into a stock that lacks liquidity and has enough price movement or volatility that the stock has some pop in it.

2. Trade with the market sentiment.   Looking at what the current market conditions are is essential, because as the market goes so goes most stocks.  That means looking  at certain charts like the S&P 500 ($SPX,SPY),  Dow Jones Industrials ($DJI, DIA)  Russell 2000 (RUT), or the Wilshire 5000 ($WLSH).  I have listed these four indexes because each  provides market depth, and will provide a true understanding of the market direction when analyzing all four.

3. Look for strong sectors.  When markets are moving in one direction it will generally mean that their are certian sectors that are leading that type of market move.  For instance in the latest bull market move, technology, consumer discretionary, and consumer staples have performed really well.  So I have been mostly making trades from those sectors.  If the market takes a turn for the worse look for the worst performing sectors.  Energy, Materials and Industrail come to mind  But looking at sectors is a great way to find stocks to trade.  A couple of free online resources can be leveraged to find strong sectors.

• Sector SPDRS - these are ETF's that can be traded and on this site you kind find the financial information for each ETF as well as their individual holdings.
• FINVIZ.com   Finviz.com has a groups section which is really the sector performance for the sector.  It will also list every stock in the sector and you can sort them based on different criteria.
• Barchart.com.  Provides a break down of the sectors into industries and ranks them.

4. Find the stock.  Once you have narrowed down the market direction, and sector direction it is just a matter of finding the strongest stocks in those sectors. 


The method I just described is called the top down method of finding stocks it is a fantastic way to systematically organize stocks that are trading in a way that will most likely match the broader market trend.

In my next option trading blog on finding stocks I will share with you some other methods and ideas to find stocks. I’ll use a couple of examples where I have found stocks using the process. If you want to take a look at our current picks, register for the 14-Day Free Trial. You will have access to all of our trades and research.