In day trading,
the concept of “buying strong stocks and selling weak stocks”
is extremely important.
However, the difficult part here is
“how do you even determine which stocks are strong or weak in the first place?”
that is the question.
Is a stock strong if it is up 3%?
Is it weak if it is down 3%?
I do not judge based on that alone.
What is important in day trading is not just the simple rate of rise or fall, but
“looking at how that stock is moving compared to the overall market sentiment.”
I believe this is what matters.
This time, I will explain the points I check when determining strong and weak stocks for day trading.
1. First, compare it with the Nikkei 225
The first thing I look at is a comparison with the Nikkei 225.
For example,
suppose the Nikkei 225 is down 500 yen,
which is a very weak market sentiment.
However, stock A, which I am monitoring, is up 2%.
In this case, I consider Stock A to be quite strong.
What is important is,
it is not just about “it is up 2%, so it is strong.”
Even though the Nikkei Stock Average is falling significantly, it is maintaining a +2% gain.
There is significance in this.
Conversely,
Nikkei Stock Average +500 yen
but,
Stock A -2%
what about that?
This is a relatively very weak stock.
In other words,
strength and weakness are judged not by the stock alone, but by comparing it to the market environment.
This is the basic principle.
② Observe the “reaction” when the Nikkei Stock Average moves
What I particularly emphasize is,
how individual stocks react the moment the index moves
.
For example, if the Nikkei Stock Average goes,
+200 yen
↓
+400 yen
↓
+600 yen
is rising.
At that time, stock A is also hitting a new high.
This is a stock that is following the market trend obediently.
However, stock B is,
up 1% when the Nikkei average is up 200 yen.
It remains up 1% even when the Nikkei average rises by 600 yen.
Furthermore, it is being sold off little by little.
In such a case,
the change where “it stops reacting even though the index is rising”
is something I am wary of.
Beyond just the current stock price,
how the stock reacts when the index moves
is where you can easily see the strength or weakness.
3. Compare with the entire sector
The next thing I look at is the sector.
For example, if it is a semiconductor stock,
Advantest
Tokyo Electron
Lasertec
Kioxia
Renesas
I look at related stocks together, such as these.
For example, if the entire semiconductor sector is up around 3%,
but the stock I am targeting is down 1%.
In this case,
“Semiconductors are strong, so I’ll buy.”
I don’t think that way.
Rather,
“With semiconductors this strong, why is this particular stock weak?”
is what I think.
Conversely, if the entire semiconductor sector is falling but one stock is maintaining a positive gain,
this is a relatively strong stock.
I make it a point to look at strength and weakness in the order of:
Index → Sector → Individual Stock
as I observe.
4. Observe the movement after the opening bell
The price movement immediately after the opening is also important.
For example, a stock that starts with a gap up.
I do not judge a stock as strong just because it gapped up.
What is important is
whether it continues to be bought after the gap up
.
It gaps up at the open.
Then it goes on to hit a new high.
Even when pushed down, they are bought up immediately.
Even if the index drops slightly, they do not fall much.
It becomes easier to judge such stocks as strong.
Conversely,
Significant gap up.
The price at the moment of the opening is the high.
From there, a large bearish candle forms.
It also breaks below the VWAP.
Even if it rebounds, it gets sold off.
In that case, even if it looks strong before the opening, there is a possibility that it has turned into a weak stock after the opening.
Rather than the gap up or gap down itself,
observing whether buying or selling is dominant after the opening
is important.
5. Look at whether it is above or below the VWAP
When I look at the strength or weakness of the day, I also check VWAP.
To think about it very simply,
Trading above VWAP → Buying tends to be dominant
Trading below VWAP → Selling tends to be dominant
Trading below VWAP → Selling tends to be dominant
is a way to look at it.
However, it is not a matter of simply saying it is strong because it is 1 yen above the VWAP.
What I want to see is,
the reaction of price movement relative to VWAP.
For example, with a strong stock,
price rises
↓
drops once
↓
buying comes in near VWAP
↓
rises again
is a pattern that can occur.
Conversely, with a weak stock,
price falls
↓
rebounds once
↓
returns to near VWAP
↓
is sold again
is a pattern that can occur.
I use VWAP as,
a benchmark for observing the battle between buyers and sellers for the day.
I use it as that.
⑥ Observe the reaction to the 5-minute 25MA
What I often use for day trading is the 5-minute 25MA.
In the case of a strong stock,
rise
↓
pullback
↓
near 25MA
↓
buying comes in
↓
rises again
is a shape that can occur.
I sometimes target these pullbacks.
Conversely, with a weak stock,
fall
↓
rebound
↓
near 25MA
↓
is sold
↓
falls again
is the shape it takes.
This is a pattern where it is easy to consider selling into a rally.
What is important is not the 25MA itself, but
seeing whether buyers or sellers are winning near the 25MA
that you need to look at.
7. Check the position of the daily chart
I always check the daily chart as well, not just the 5-minute chart for the day.
For example,
Above the 5-day moving average on the daily chart.
Above the 25-day moving average.
Making higher highs.
In a position to target the recent high.
And the market sentiment for the day is also strong.
Such stocks are very easy-to-understand strong stocks for me.
In other words,
daily chart is strong × market sentiment for the day is strong × individual stock is also strong
is the state.
Conversely,
Below the 5-day moving average on the daily chart.
Below the 25-day moving average.
Making lower lows.
The market sentiment for the day is also weak.
Individual stocks are also below VWAP.
When this happens, it becomes easier to judge that the state is quite weak.
“Stocks that don’t fall” are strong
This point is extremely important.
When people talk about strong stocks,
“stocks that are rising significantly”
are what come to mind easily.
However, what I pay attention to is
“stocks that don’t fall even when market sentiment worsens”
.
For example, the Nikkei average plummeted.
Many of the stocks I’m watching fell all at once.
But only stock A barely fell.
And the moment the Nikkei average rebounded, stock A hit a new high.
Stocks like this are very strong.
This is because
they were not sold off even during times when market sentiment was poor
.
I,
It’s not just about
“it went up, so it’s strong.”
I also place great importance on the movement of “not falling when the market drops.”
“Stocks that don’t rise” are weak
The opposite is also true.
The Nikkei 225 index surges.
My watchlist stocks all rise together.
However, only Stock A doesn’t go up.
I am cautious about stocks like this.
Furthermore,
the moment the Nikkei 225 drops slightly,
only Stock A hits a new low all at once.
When this happens,
it’s not being bought on the upside, but it is being sold on the downside.
It is in a very weak state.
When I consider short selling,
I look for stocks that are clearly weaker than the market sentiment.
Buying strong stocks makes it easier to target pullbacks
Why is it important to find strong and weak stocks?
This is because it makes it easier to consider entry positions.
For example,
The daily chart is strong.
The market sentiment is also strong.
The sector is also strong.
The individual stock is also strong.
This stock temporarily pulled back to near the 5-minute 25MA.
However, the index has not collapsed.
In such a case,
you can consider it a “temporary pullback in a strong stock.”
I aim for such dip buys.
If it is a weak stock, consider selling into rallies.
Conversely,
The daily chart is weak.
The market sentiment is also weak.
The sector is also weak.
The individual stock is also weak.
That stock temporarily rebounded and returned to near the 5-minute 25MA.
However, the index is still weak.
This is how I analyze the situation.
In such cases,
it can be considered a “temporary rebound of a weak stock,”
and you can consider selling into the rally.
What I want to target is
not forcing a short sale on a strong stock, nor forcing a buy on a weak stock.
It is about aligning the direction of individual stocks with the market sentiment.
Conditions I use to easily identify strong stocks
To summarize,
・Stronger than the Nikkei 225
・Strong within its sector
・Resistant to falling even when the index drops
・Makes new highs when the index rises
・Buying continues after the market open
・Maintains a position above VWAP
・Bought near the 5-minute 25MA
・Daily chart is in an uptrend
The more of these conditions are met, the easier it is for me to judge it as a strong stock.
Conditions I use to easily identify weak stocks
Conversely,
・Weaker than the Nikkei 225
・Weak within its sector
・Does not rise even when the index rises
・Makes new lows when the index drops
・Being sold since the market open
・Trading below VWAP
・Sold even when it rallies back to VWAP
・Sold even when it rallies back to the 5-minute 25MA
・Daily chart is in a downtrend
If these conditions overlap, it becomes easier to judge it as a weak stock.
What I want to see most is the “moment the market sentiment changes”
When looking for strong or weak stocks, I don’t just look at simple price increase rankings.
What is very easy to understand is
the moment the Nikkei 225 moves significantly.
The Nikkei 225 has plummeted.
→ Which stocks are not falling?
The Nikkei Stock Average rebounded sharply.
→ Which stock hits a new high the fastest?
The Nikkei Stock Average rose.
→ Which stocks still fail to rise?
Comparing them in this way makes the relative strength of each stock much easier to see.
Strength and weakness can be understood by “comparison”
In day trading,
“Is this stock strong?”
it can be difficult to judge based solely on that stock’s chart.
I look at,
Nikkei Stock Average
↓
Sector
↓
Competitors/Watchlist stocks
↓
Individual stock
↓
VWAP/5-minute 25MA
↓
Daily chart
In this way, I compare multiple pieces of information.
In day trading,
rather than looking for strong stocks, I look for “stocks that are strong compared to others.”
The same applies to weak stocks.
And,
in a strong market environment, I buy the dips of strong stocks.
In a weak market environment, I sell the rallies of weak stocks.
I place great importance on this combination.
Instead of simply “buying because it’s going up” or “selling because it’s going down,”
how is that stock moving relative to the market environment?
Once you start looking at this, I think your perspective on analyzing stocks for day trading will change significantly.
Read also: About the day trading practice game, membership, and free gifts created by an active trader
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