Here it is at long last: my ultimate trading checklist.
What’s behind this checklist? It’s simple, really. Traders should ask themselves this question before EVERY trade…
What’s the ‘why’?
Trading isn’t quite as simple as going after what I call the ‘shiny object du jour.’
But that doesn’t mean it has to be overly complicated.
That’s one reason I have a list of criteria I like every stock to meet. It helps me make sure there’s a good reason to trade. No, not every stock will check every box. But the more boxes it checks, the better I feel about executing.
Here’s a checklist of what I look for in stocks to trade…
Table of Contents
- 1 Bohen’s Ultimate Trading Checklist
- 2 Two Must-Know Patterns for Traders
- 3 Screening for Stocks That Meet YOUR Trading Checklist Criteria
- 4 Always Make a Case…
Bohen’s Ultimate Trading Checklist
Before I get to the list, a reminder…
Trading isn’t an exact science.
There’s no guarantee that every stock that checks all the boxes is guaranteed to make big moves. I don’t just want you to copy and paste this checklist with your trades and say, “Bohen made me do it!”
Every trader should have their own standards for whether or not they take a trade. This list is just a starting point to help you make your own trading decisions.
So before you trade, ask yourself…
✔Trading Checklist Item #1: Is It in a Hot Sector?
Hot sectors tend to get more attention, more news coverage, and generally attract more traders. That’s a great recipe for creating the volatility that short-term traders like to see.
Hot sectors can last a long time, or they can be the flavor of the month variety (hello, NFTs.)
They can also come in waves.
For instance, the electric vehicle (EV) sector was possibly the hottest and longest-lasting hot sector I’ve seen in my trading career. The sector was crazy in 2020. There’s been a huge cool-down in 2021.
I think it could come back — but it needs a catalyst. We need Elon Musk to announce some crazy new innovation or something. People need to get excited about the sector again before it will re-heat.
A recent issue of the SteadyTrade podcast focused on hot sectors and the mania they can create. Check it out:
✔Trading Checklist Item #2: Does It Have Unusually High Volume?
Daily volume is the number of shares traded during a given trading day. Unusually high volume just means the stock is trading a lot more shares than usual.
For instance, say that I see a stock in a hot sector that just put out a press release. The next thing I’ll look at is the volume.
Say the daily volume’s 10 million shares but 8 million shares have already traded in the premarket. That’s a pretty good sign that people are interested in the stock. That kind of volume tells me that the stock could be poised to make a big move.
But remember — unusual volume alone won’t make or break a trade. For example, a stock with high volume in the premarket could be pumped up in a chat room then fizzle out at the open. That’s why it’s just one of the boxes I check…
✔Trading Checklist Item #3: Is It a Low-Float Stock?
A stock’s float refers to the shares available for public trading, excluding restricted shares.
The stock market moves based on supply and demand. The reason why I love low-float stocks is that they have lower supply. If demand kicks in, it can create ridiculous moves and multiple opportunities to trade a given stock.
There’s no official amount that makes a stock low float. I’d say it’s typically less than 10 million shares — but that can be variable depending on the stock.
✔Trading Checklist Item #4: Does It Have News?
Well, “news” might be an aspirational term. Mainly, what you want to look for is some sort of newsy item that is acting as a catalyst for the stock.
For penny stocks, the news could be as flimsy as a pump-y press release with a bunch of buzzwords.
For instance, in my April 19 Pre-Market Prep session, I talked about how Ambow Education Holding Ltd. (NYSEAMERICAN: AMBO) had just put out an 8:30 a.m. Eastern press release. It was littered with buzzwords and mentioned Amazon.
Even though the actual news was dubious, the company clearly knew how to play the penny stock game. Releasing attention-grabbing PR right before the market open was enough to command attention and lure in traders.
When it comes to trading, “buy the rumor, sell the news” is a very real thing. Hype or the scent of future news is often a more powerful mover of stocks than actual news.
✔Trading Checklist Item #5: Has It Run Before?
History doesn’t always repeat … but it rhymes. If you see that a stock has spiked over and over again, it doesn’t guarantee that it will again. But it gives you an indication of what the stock is capable of and could do again.
For example, my weekly watchlist subscribers may remember that a few months ago, Vuzix Corp. (NASDAQ: VUZI) was on the watchlist practically every week. That’s not because I’m lazy. It’s because that stock was doing the same thing over and over. It would break out, consolidate, then break out again.
Personally, when I see a three-wave pattern like that repeating, I think the stock is worth some extra attention.
Two Must-Know Patterns for Traders
Once I’ve determined that a stock fits my criteria, it’s time to move on to thinking about how to make the trade actually happen.
That means looking for the right patterns and trading at the appropriate times.
There are all sorts of trading patterns out there, but you’ll hear me talk about these two all the time…
Dip and Rip Pattern
This is one of my absolute favorite patterns for new traders. I have an in-depth post on the dip and rip, but just to review…
The dip and rip starts with a stock that opens strong, then has a dip right after the market open.
Shortly after that dip, it rebounds and reclaims the previous high — and sometimes, it goes even further.
Patience is key. The dip and rip is the perfect example of what I call the 9:45 rule.
The idea is simple. By waiting for about 15 minutes after the market open, you’re separating yourself from the traders who rush into stocks at the open — and often get stopped out.
The 9:45 rule lets the stock prove itself.
This is a great pattern if you can buy on the dip and hold into the rip … But it doesn’t always work out. Be prepared to cut losses if the trade goes against you!
For a real-life example of how the dip and rip pattern played out on a recent runner, check out this post.
Late-Day, VWAP-Hold, High-of-Day Pattern
This is the yin to the dip-and-rip’s yang.
Say you didn’t get a dip before the rip in the morning. There’s a silver lining — you may have a second chance to trade in the afternoon.
Enter the late-day, VWAP-hold, high-of-day pattern.
If you didn’t get in early, it’s time to look for a potential late-day break. As an added bonus, you’ve got several more hours’ worth of intraday chart action to help inform your decision.
Ideally, you’ve got as many of the criteria listed above going as possible for a stock. All the better if it’s at or around 52-week highs.
Even though you won’t trade until later, you still want to see an early spike — that’s a sign that the stock could have that late-day break.
After waiting patiently, you look for the stock to break the high of the day at around 2 p.m. Eastern or later. If it’s holding VWAP, it could be go time. Of course, I always set stop-loss in case of failure.
Screening for Stocks That Meet YOUR Trading Checklist Criteria
How do I figure out if stocks check all the boxes? How do I figure out if they’re holding VWAP?
I use StocksToTrade, naturally.
Advanced charting software. Built-in scans. Customizable search and indicator options. Not only does STT have everything you need to make sure stocks meet specific criteria, but it can also help you easily see if a stock is following your go-to patterns.
Interested? You can try StocksToTrade for 14 days for only $7. Or you can get a 14-day trial of StocksToTrade with the Breaking News Chat add-on for just $17.
I also have a NO-COST weekly watchlist — subscribe now!
Always Make a Case…
There are never any guarantees in the stock market. That’s why it’s a trader’s responsibility to do their due diligence and make a case for every trade.
Filtering potential trades through this checklist doesn’t take long. But I find it has a positive impact on my trading — and state of mind.
If a potential trade doesn’t meet my criteria, it’s off the list. It’s an easy way to protect myself and cut the fat from my watchlist so I can focus on the trades with the most potential.
Do you have a trading checklist of specific criteria? What boxes do you make sure to check off before you trade? I love hearing from you … Leave a comment!