{"id":4365,"date":"2015-07-23T06:27:02","date_gmt":"2015-07-23T10:27:02","guid":{"rendered":"http:\/\/www.morpheustrading.com\/blog\/?p=4365"},"modified":"2023-01-23T12:12:19","modified_gmt":"2023-01-23T17:12:19","slug":"find-explosive-stocks","status":"publish","type":"post","link":"https:\/\/morpheustrading.com\/blog\/find-explosive-stocks\/","title":{"rendered":"2 Simple Formulas For Finding Stocks With Explosive Potential"},"content":{"rendered":"

\"explosiveMany new swing traders struggle with stock selection, with most simply limiting their stock trading to a handful of the most popular stocks in the market.<\/p>\n

Stocks that traders typically follow have a huge float (shares available for trading) and move at a snails pace, or not much faster than the S&P 500 itself.<\/p>\n

However, to make consistent gains from taking advantage of momentum in the market, swing trading is best accomplished by limiting your selection to stocks that have the ability to run 20-30% higher in a few weeks, <\/strong>rather than a few months.<\/p>\n

Easier said than done, you might be thinking?<\/p>\n

Not necessarily.<\/p>\n

Read on to learn about two incredibly simple and effective formulas to dramatically increase your odds of finding stocks with explosive capability…<\/p>\n

Formula For Fast Movers<\/strong><\/h3>\n

As mentioned above, momentum swing traders must select stocks that have a healthy motor and can run 20% or more in a short period of time.<\/p>\n

Typically, these stocks will have a low float and trade with a high ATR (average true range) relative to their price.<\/p>\n

ATR (average true range)<\/a> is a built-in technical indicator on most charting platforms that measures a stock’s volatility.<\/p>\n

Using the ATR, we use a rather simple, yet highly effective formula to gauge whether or not a stock is “fast” enough to trade.<\/p>\n

The formula is found by taking the stock’s 20-day moving average of price, then dividing it by the 14 or 21-day ATR. <\/em><\/p>\n

Based on this formula, stocks that return a value of 20 to 30 are very explosive and are usually best for swing trading, especially when they are liquid (easily tradeable for individual and professional investors alike).<\/p>\n

Equities with readings around 40 are average, while above 60 is pretty slow.<\/p>\n

The higher the number, the slower the stock. The lower the number, the faster the stock usually moves.<\/strong><\/p>\n

The idea is to limit stock selection to those that have higher odds of making an explosive run over a short period of time.<\/p>\n

Of course, just because you select such a stock does NOT necessarily mean it will always move faster than others, but it definitely puts the odds in your favor.<\/p>\n

Horizon Pharma ($HZNP) is an example of a solid mover:<\/p>\n

\"$HZNP<\/p>\n

Liquidity Rules<\/strong><\/h3>\n

Liquidity<\/a> also plays a major role, as stocks with a low float and healthy ATR, along with good liquidity make the best candidates.<\/p>\n

A simple rule for gauging liquidity is to multiply a stock’s current price by its 20 or 50-day moving average of volume. <\/em><\/p>\n

Stocks that return a dollar value of 10 million or more are ideal, with around 10-30 million area being optimal for most candidates.<\/p>\n

By itself, a higher reading with this formula is NOT necessarily better because although we want stocks that are liquid, we also<\/em> want stocks that have explosive capability.<\/p>\n

This is the reason why Tesla Motors ($TSLA) is such a desired stock on Wall Street; it is very fast and extremely liquid:<\/p>\n

\"$TSLA<\/p>\n

Another example of a stock with great liquidity that moves quite well is Biogen ($BIIB), as shown on the chart below:<\/p>\n

\"$BIIB<\/p>\n

On the other hand, there are many popular stocks that are not<\/em> ideal trading candidates because they trade at a low ATR relative to their price a majority of the time.<\/p>\n

Household internet stock Google ($GOOGL) is one such example of a stock that does not<\/em> meet our criteria as an ideal stock to swing trade:<\/p>\n

\"$GOOGL<\/p>\n

After selecting stocks with strong motors and proper liquidity, the next step in our short-term stock trading scans<\/a> is to verify the stocks are “in play.”<\/p>\n\n\n