The One Metric That Helps Me Find Stocks With The Greatest Potential

After crashing out of last week essentially flat, I was hopeful that I would run into some better opportunities coming out of the long President’s Day weekend. I’m happy to say the market mostly obliged, with Tuesday producing an 85% gap in Bellerophon Therapeutics, Inc. BLPH that helped me add $11k to my monthly total. I also capitalized on some continuation in BLPH on Wednesday in addition to a $3,600 winner in Myomo, Inc. MYO.

While Wednesday and Thursday were slightly less successful, I feel like I’ve been able to make the most of the opportunities I’ve found. Well, at least in my main account.

I have continued to plug away at my TD Ameritrade cash-only account and progress is steady, if extremely slow. I’m green on nine of the 10 days I’ve traded the account and am up nearly $2,000 over the first two months. I’m hoping to hit 100% growth before the end of the month (remember that I started with $2,500), but that would require some stellar setups that, unfortunately, have been harder to come by when I’m restricted to only using cash.

The struggle of only using cash for my trades is that it restricts my buying power, not only in the moment but also in the days it takes for the trade to clear.which is a critical limitation when you only have a few thousand dollars funding your account. The primary challenge stems from finding the right stocks to trade at the right price.

I discussed this in Wednesday’s recap video when going over my trade in SemiLEDs Corporation LEDS, which I chose to trade over BLPH because it was a third of the price. That, in all honesty, was the primary factor for choosing to trade LEDS and walk away with a modest $100 win. I knew it would ultimately be more profitable if I just tied up half of my buying power for 1,000 shares of LEDS rather than using all of my buying power to purchase just 100 shares of BLPH.

Although trading under the cash-only limitation forces my hand in the matter, it’s usually true for me that lower cost stocks have produced better returns over my trading career. In fact, one of my main criteria for finding good trading setups is to find stocks priced less than $10, usually less than $5. Other factors, like the likelihood of less expensive stocks to move faster than higher-value stocks and the gap-and-go opportunities that presents, only reinforces the benefits of trading penny stocks or otherwise cost-effective tickers.

Of course, finding good penny stocks and screening for the right opportunities for you is a matter of trial and error. My hope with Warrior Trading is that new traders can more easily learn how to discriminate between stocks that are a good value and the ones that are simp[ly cheap.