There are literally thousands of stocks listed in the various stock markets which are quite suitable for trading profitably, but how does a trader go about choosing his/her stock selection successfully?
In this particular instance I am not referring to the commonly used basic fundamental approach. This where the trader analyses the various fundamentals of the company, which also includes researching the performance results and checking its price-earnings ratios and other basics fundamentals.
Overall, many successful traders who genuinely make their living off by trading professionally in the stock markets, quite often their preferred method seems to be the technical analysis approach.
This means of course that they are using charting methods, and the other various technical indicators which pertains to their selected stock. What these traders are actually trying to do is to scan for stocks that will meet some of their preselected indicators or criteria. The ultimate aim of course is to show the trader which stocks are beginning to move or have already begun to move in the desired direction.
Quite a few of the professional traders who are trading fora living use a multitude of trading tools to assist them in making their substantial profits. One of the most common tools that they prefer to use is the indicator called, On Balance Volume or OBV for short.
These traders have discovered that by using this indicator they are then able to identify when there is a difference in this setting, or where OBV has already had an outbreak, but the stock price has still lagged behind. This occurrence gives rise to the situation where an imminent price jump is to be expected in the very near future.This of course is a very desireable situation for a trader to be in
But how large is this imminent jump going to be? If there is indeed an OBV outbreak, and by inference the share price should then by rights follow in the next few trading sessions or so. The trader must also be able to ascertain whether this impending price jump will be of sufficient size to guarantee a good margin of profit big enough for him to trade profitably.Saying that, it does not pay to be too greedy in this situation, as a small profit is definitely more advantageous than no profit at all.
In addition to using OBV, traders can also add yet another trading indicator to their tool bag to help to verify these impending jumps that occur in the share price. This other indicator that is used quite frequently by profitable traders is Elliot wave theory. We know in Elliot wave theory that the 3 and 5 waves of any stock are the impulsive and strong waves which move upwards.
I have observed a lot of success from traders who have scanned their stocks with an OBV outbreak and are also in their impulsive 3 and 5th waves which are their longest and strongest waves.
So in summing up, when you have found a stock that has just experienced an OBV Outbreak upwards, and is moving within either its 3rd or 5th waves as well, you therefore have found an excellent prospect that will quite probably run away upwards in price. Traded correctly, this could achieve you a nice profit within a very short trading period of time.
Chris Strudwick is a successful share trader on the Australian Stock Market Visit his weblogs at both http://www.asxnewbie.com AND http://www.aussie-retiree.com/ for more free articles and useful information about the stock market.
