Screening Stocks for Trading

It doesn’t matter what kind of short term stock trading you are doing, you need to have a good screening method before you execute any sort of trade. This goes with binary options, too. Binary options do require a higher degree of specialization by default, simply because of the fact that there are fewer choices when it comes to assets.

Either way, you need to have the ability to make good choices on a consistent basis. There are a few things to look at when evaluating a trade idea, and the first is momentum. Momentum becomes more and more important the shorter the term that the trade is set for. To do this, start by looking at both the 50 day moving average and the 200 day moving average. For the short term trades, exponential moving averages are best because they way more recent activity more heavily. This won’t work well with things like 60 second trades, but they are good indicators of trades a couple hours in length.

If you look at both of these numbers for Alphabet, Inc. (what used to be Google) right at the end of business on Tuesday, November 10, you will see that the stock closed well above the 200 day EMA, but right on the border of the 50 day EMA. The margin is too small here to make a confident trade. To go long on the stock, you would want to be confident that the stock was trading well above this line. If you wanted to go short on the stock, the opposite would need to be true. You would want both the 200 day EMA and the 50 day EMA lines to be below the current price. If you are focused on a trade of a few hours in length or longer, this is a good method of screening stocks. Shorter than this, you need more. It’s not a perfect screening tool, but it’s quick to check and it is a good start.

For shorter trades, you need to adjust the timeframe of your EMA searches, or find another technical indicator to use. Momentum is a strong tool for binaries because you don’t need to predict how much change will take place, just that change will happen. To determine this, you can also use strength indicators, like RSI. It’s always a good idea to check a stock out against more than one indicator, too. In the above example, we used two different EMA measures to check GOOG to determine that it probably wasn’t a good short term trade for going long on Wednesday. This is effective, and you can use other indicators than the two EMAs, if you wish. Just don’t rely on one indicator alone. And always remember to take a quick glance at overall fundamental trends before you begin, too.

A lot of the basics will be covered for you if you do focus on binaries. These are typically the biggest and most widely traded stocks there are. These are your Apples, your Facebooks, and Twitters. These are the big companies that are most widely traded, and binary options brokers know that. This is why they are included on the brokerage sites. Because the assets are so widely traded, they have a lot of liquidity. While you don’t need to focus too much on the technicalities of liquidity if you do focus on binary options, high liquidity does mean that there will be more price movement. A lot of the time, this increased price movement is easier to predict than in the little traded stocks. This is something that should work to your advantage if you follow the other steps included here.

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