Identifying the Next Stock Market Winners. By Scott A. Cole

Since the U.S. stock market hit its closing low on March 9th, it has rallied over 20%. Even prior to the Dow Jones Industrial Average's 497 point advance on March 23rd, the market had shown significant signs that a nice rally was in force. Smart investors, who've been waiting for a decent opportunity to put some capital to work, have set their sights on the stocks that are showing significant strength compared to the rest of the market.
Picking the next big movers in the stock market can be a daunting task. But, many of today's analytical programs make this task a little bit easier. I use a program called Telechart by Worden Brothers, and have been using this program for about ten years. However, many of the online brokerages offer good capabilities as well.
Here are a few tips to finding stocks that are ready to make nice moves over a couple month period:
1. Look for the stocks that are trading at or near new 52 week highs
2. Look for stocks that are trading further above their 52 week lows than other stocks
3. Look for stocks that have shown significant increases in volume over the last six months
Once you have identified a number of stocks that show these characteristics, look for stocks that have been consolidating for a couple weeks, and up to four or five weeks. We don't want to enter a new position when a stock has been up 10 days in a row, so we look for those that have traded sideways for a bit within a nice uptrend. We then look to enter a trade when the stock breaks out above its recent consolidation pattern.
These are your high momentum stocks that, when market conditions are good, can give you a pop of 50% to over 100% in just a couple months. However, in the current market environment, it is a good idea to scale back expectations, and not to use any leverage. However, these stocks can provide you with decent short term returns. If it becomes clear that economic conditions are improving significantly, you can then be more aggressive.
Remember, there is no full proof trading strategy. This type of strategy will generally result in more losing trades than winning trades. However, if you use some common sense and manage your risk, you can enjoy decent returns, as a few good trades will more than make up for the small losing trades.
Copyright (c) 2009 Scott Cole
Scott Cole is a stock market analyst and owner of the website http://www.theultimatestocktradingsystem.com. He also writes daily market commentary at http://www.kungfutrader.com

Article Source: http://EzineArticles.com/?expert=Scott_A._Cole