How to Find Stocks to Trade

Just how do we go about finding a great trade?

If you’re getting your trading ideas from friends, your barber or individuals you meet in your everyday life you are up the creek without a bank account.

The next place on the list of worst places to get trading ideas would be free financial chat rooms. Most of these are either the blind leading the blind or a pump and dump scheme.

The blind leading the blind is a room full of neophyte traders (also called green peas) getting ideas from financial websites, magazines, their brokers, etc. Some of these may actually be good trades but nobody in the room knows where the entry, stop loss or exit should be.


The very worst are the penny stock trading rooms. These may be chat rooms, email alerts, newsletters or whatever. The slower the notification system the worse they are.

Penny stocks are worthless stocks. That’s two words. Worth—less. Most often worth less after you buy them. The reason they are a dime or a quarter or even a buck is for a good reason. They don’t have a viable competitive product, terrible management, not enough cash to run the business or a myriad of other fatal business problems.

Yes, occasionally one will take off, but that is attributable to a change in circumstance within the company. If you find one of these before everyone else knows, please let me know and I will join you in that trade.

These are favorites of the pump and dump crowd. If a stock is only a dime a share even someone with only a few hundred bucks in a trading account will buy thousands of shares. Pump and dump is not limited to penny stocks. If you can’t verify a story through normal news channels it’s probably bogus.

If the pumper is highly followed all they have to do is say they bought and everyone else jumps in. Normally they heard a rumor, an employee told them things are about to pop, (blowup???) or as many reasons as you can dream up. Your buys, and hundreds or even thousands of others, drive the price higher, usually very swiftly.  While you’re buying the pumper is selling you his shares.

Brokers want you fully invested so they can draw their commissions. Fully invested means all your capital is in the market. They also believe that you cannot time your entries and exits and thus believe you should stay in the market even if the indices fall by 50 % or more. They seem to think that if the market is down 25 % and your account is only down 22 % you are doing well. They also are true believers in a diversified portfolio. Whether you are in an index fund (Dow Jones-S&P-Nasdaq or many others) or in a diversified portfolio (15 to 100’s of stocks) the broker’s primary concern are their commissions.

All this and more before you ever make a trade.

As a value trader I may have eight or ten positions open but there is no relationship to diversification.

In this series of posts I will attempt to explain to you the various factors I am paying attention to as I enter and exit a trade. These will not be real time trades but the entries will have been posted in real time.

Posted by Judy Romero