HOW TO PICK STOCKS TO TRADE

There is no "one stock picking method that fits all" for picking stocks to trade. It depends on your needs, expectations and goals for the stock. Lake Life Trading uses several criteria for picking the stocks that we trade, depending on our goal for that trade. These criteria help us decide if, when, where and for how long we trade them. Some of the stock picking criteria you should consider are;

Are you a day trader, who is out daily by 4pm EST? Are you a swing trader, who holds 2-30 (ish) days? Are you an investor, or long term trader, who doesn't care how long they hold a trade? Or might your trading style be a combination or two or more of these? Do you prefer options or indices, over stocks? Do you tend to trae high dividend stocks? These are all factors to consider when picking assets to trade. 

In a strong Bull or Bear Market, momentum strategies tend to work well. In a sideways or "choppy" stock market, being more conservative is usually wise. Momentum Strategies are not as effective as using fundamental trading strategies, based purely on the stock's price action and volume. 

Choose names of products that you use often. Names like Apple, Johnson and Johnson, Amazon, Walmart, Google, Microsoft, Meta (Facebook), Home Depot and the like are good stocks to start with. 

Depending on whether you are a bearish trader, a bullish trader, or neutral - the first thing you need to know about a stock is whether or not the current price trend is moving in the same direction that you want to trade.  Otherwise, you'll find yourself on the losing end of the trade rather quickly. 

Market Makers make a fortune on the BID/ASK Spread. Don't pay them more than you should. This is usually a problem on light volume traded stocks, compared to high volume. If a stock trades less than 500k shares per day, you may want to find something else for day or swing trading. 

A low float stock is usually desirable for speed or "scanner" trading.  This is a dangerous way to trade, and we do not recommend it. Knowing how many shares are available to trade can give you some indication of potential volatility based on average volume, news and current volume. Trending short float stocks are very volatile, while high float stocks tend to be more stable and progressive in price action. 

The short float can tell you how the hedge funds are involved with a stock. Most times, a stock with a high short float (above 10%) is a dangerous trade to try to get long or "bullish" on. This may be an opportunity stock to play short or "bearish" but you'd want to have a strategy before attempting an entry. 

The Average True Range (ATR) or Average Daily Range (ADR) of the stock will play a role in you achieving to your objectives. If you want to make $5 on a day trade with a stock that only has a $2 ATR/ADR, it's not likely that you will accomplish your goal. This is a continuously changing value, based on the previous 14 days of trading, that gives you an idea or an estimate of how much the stock should move on a daily basis. This affects day trades, swing trades and long term trades.