Kooke, there's no easy answer to that but the best trades are usually where a combination of factors line up:
- the stock has fallen hard.
- is near a support level.
- has good buyer support and evidence of fading selling.
- is just above a round number (buyers tend to cluster at factors of 10 and 5 for psychological reasons. These often form temporary support levels, so it's worth buying at, for example, $3.11 or even better, $3.01.)
- ideally has gone parabolic, ie, panic selling has set in, which is usually the last gasp of an intraday down-move before the scavengers appear and drive the price back up. This is generally the moment of maximum opportunity.
- is caught in a general sell-off, rather than a sector-specific sell-off based on deteriorating fundamentals. eg, today resource stocks will be walloped and will drag down other sectors that don't have the same grounds for a fall.
- and finally - and this is the most important element - the stock must not have released an announcement that justifies the selling, eg, a profit downgrade. Buying in that situation sometimes pays off but premature buys can be massively destructive.
You don't need all of these factors to be in place to make a profit but the more boxes you can tick, the higher the probability of a successful trade. Be patient, be nimble and cut your losses quickly if a trade turns sour. For me, these are purely intraday trades and should not be held overnight unless there has been a genuine reversal over the course of the day.
