Best Stock To Buy
What is the best stock to buy when you only have enough money to buy one stock? I mean this stock REALLY needs to be the best stock to buy because you are putting all your money into just one stock.
Best Stock To Buy Right Now
Here are the criteria we look for when determining the best stock to buy right now:
2. Small cap between ($300 million and $2 billion market cap)
3. Beta over 1.5
4. Volume greater than 1 million shares traded per day
5. Oversold stock pattern
6. Oversold RSI
7. Days to cover short position greater than 3 days
Stock Catalyst Definition
The catalyst is what can drive the stock higher from its current price. It is based in trader psychology and it is that thing which turns fearful investors into greedy ones as they pile into the stock. A stock market catalyst can be an earnings announcement or news about a new big customer. A stock catalyst definition even includes things like a new patent, FDA approval, or court case ruling. The best way to get good at determining what a money making catalyst is, is to go to Finviz and click on the top gaining stocks for the day and go through the news releases. Ask yourself, what is the catalyst that made this stock soar today?
The small cap being between $300 million and $2 billion is important because the best stock picks will be able to move and move big. Small caps fit that bill. You don’t want to buy into a large cap stock like Microsoft if you want to make 5% to 10% in a stock with a 1 to 4 day hold. Institutional traders and money managers in Microsoft talk about the stock all the time on TV because it’s huge and they can move millions of dollars into it without affecting the price too much. That doesn’t mean you should buy it if you are a small growth oriented trader.
Best Stock to Buy Right Now versus Best Stock to Buy Long Term
It is important that you understand the difference between what the best stock to buy long term is, and what is the best stock to buy short term. If you are a growth oriented trader that has a little amount of money and you want to grow it into a lot, then the best stock to buy for you is going to be a small cap growth stock that you can swing trade. If you already have a lot of money and you don’t need explosive gains to make a good amount of money, then you should be focused on what the best stock to buy long term is, which is beyond the scope of this article.
Best Penny Stock To Buy
The best penny stock to buy is the one with a market cap greater than $300 million, and that trades on a major exchange like the Nasdaq. Do not subscribe to free penny stock newsletters that run pump and dump scams. These types of free newsletters will tell you what the best penny stock buy is, but in reality it’s not. The only reason it’s going up is because it’s being pumped. It has maybe 1 or 2 employees, and has sales of less than $15,000 a year and is in deep debt.
The beta over 1.5 is a measure of how much the stock moves when compared with the S&P 500 or broader market. The higher the beta score the better. You want a stock that will really move when the market moves.
The volume greater than 1 million shares traded per day will keep you from getting stuck in a low liquidity stock. You want the stock to be liquid enough so that you can move in and out of it whenever you want.
The oversold pattern is the only chart pattern you really need to look for. We want a stock to be oversold and at a previous support level where it has a history of bouncing off of.
The RSI is the only technical indicator you need, beyond volume, for timing your entry into an oversold stock.
The days to cover short interest is found on the Nasdaq website under the short interest link. Any stock with a days to cover metric higher than 3 is a short squeeze candidate. Short sellers have to buy a stock back to cover their positions and this often leads to very nice upward moves.
Frequently Asked Questions about the Best Stock To Buy
What are stock catalysts?
Stock catalysts are igniters that cause a stock to move higher from either short covering or buyers coming into a stock.
The catalyst can be either a technical (oversold, continuation, breakout patterns) or fundamental (earnings, new contracts, FDA approval, merger, etc) event.
A great way to get good at spotting the best catalysts is to go to Yahoo Finance or any website that lists the top performing stocks on any given day, and search the news stories of those top gaining stocks to see if you can find the news story or catalyst that caused the stock to do so well that day.
Dividenddotcom posted the video below called The Catalysts that Move Stocks Higher and Lower.
What are small caps in investing?
Small caps in investing are stocks with small capitalization ranging between $300 million and $2 billion.
Institutional investors like mutual funds, have restrictions that limit them from buying large positions in small cap stocks.
Swing traders often like to make short-term trades in small cap stocks because they often have fewer outstanding shares and can have explosive moves when earnings grow by 50%, and even 100% and more year-over-year.
Small caps are usually companies in the growth phase of the business cycle hence their stock prices tend to have higher growth rates than large cap stocks.
Rncdc123 posted the video below called Denver Business Consultant Teaches The Business Life Cycle.
What is a good beta for stocks?
A good beta for stocks depends on your trading strategy. The popular swing trader Jason Bond says a good beta for stocks is 1 or higher, preferably 2 or higher.
Beta is a measure of how much a stock responds to swings in the S&P 500. A beta of 1 indicates that a stock moves with the market. A beta of 1.5 indicates a stock that is 50% more volatile than the market. A beta of 0.5 indicates a stock that is 50% less volatile than the market.
If you are a buy and hold investor with a lot of money then you probably want slower moving stocks with lower volatility or a lower beta score. If you are a day trader or swing trader, you want stocks that can move big in a short period of time so you want stocks with a higher beta score.
ZacksInvestmentNews posted the video below called High Beta Stocks. The actual stocks that Kevin Matras talks about are dated but the information on beta is good.
Longer term institutional investors like Roger Groh of Groh Asset Management look for lower beta stocks. Roger Groh posted the video below called What Is the Beta When Buying Stocks?
What does relative strength index measure?
The relative strength index (RSI) measures the momentum of price movement. The relative strength index (RSI) calculates momentum as the ratio of higher closes to lower closes. Stocks that have higher closes have a higher RSI than stocks which have had more lower closes.
The relative strength index (RSI) is calculated using the following formula:
Where RS = Average of x days up closes / Average of x days down closes.
Traders use the RSI to determine overbought and oversold levels.
The RSI is a momentum oscillator that ranges from 0 to 100. A stock is overbought when the RSI is greater than 70. If the RSI is below 30, a stock is oversold.
InformedTrades posted the excellent video below called How to Trade the Relative Strength Index (RSI) Like a Pro.
Top Tier Capital posted the video below called Pretty cool way to use the RSI. How to trade using RSI.
PerfectStockAlert.com posted the popular video below called Trading with the (RSI) Relative Strength Index.
What does days to cover short mean?
Days to cover short means that if you add up all the shares that are currently short in a stock, and you divide that number by the average daily volume, you get the number of days it would take for the short sellers to cover (buy) and close out their short positions.
The days to cover metric is used to determine the probability of a short squeeze where short sellers all race for the exit at the same time causing the stock to temporarily explode upward.
The most important thing listed above is the catalyst. In fact, if you only knew how to pick stocks with a good catalyst, you could make a fortune trading without knowing any of the other 6 things listed above. However, if you eliminated the catalyst from the list above, you could master all the other 6 things and still lose all your money trading. That’s how important the catalyst is.
In the video lesson below, I talk about the catalyst and then you’ll get to hear what Jason Bond (JB), the #3 ranked trader out of more than 10,480 traders, has to say about catalysts.