The first thing I always tell people is to first trade what you know. Look around the house, or around the neighborhood and see what you can find out. Write down all the companies whose products you buy or endorse on a regular basis and start digging. Find out their revenue stream, find out where they sell their products. See how popular they are. That should give you a good place to start. Then you can use the formulas I’ve already discussed here to decide if the investment will pan out.

Not all investments have to be long term either. Many times I will buy and sell a stock because of the momentum behind it. This is fine as long as you understand the entry and exit points well and can define the catalyst behind the trade. If you can’t, meaning if you are buying it because it “seems” like a good investment…that’s not a good enough reason and you shouldn’t do it.

Another tool you can use is the Yahoo Finance most actives list. Every day the most traded stocks are listed as advancers and decliners. Generally you want to follow the trend, but when looking at advancers and decliners you need to figure out if that move is done or not.

For small and micro cap stocks a large gain over a short period of time usually signals a soon to be downtrend and you can look to short that stock. A large losss over a short period of time can signal a bottom based buy which usually means that stock is oversold.

In either case you are looking to maximize profits in a short period of time which can be anywhere from a few hours to a day or even a couple days.

The most important thing you can do is to understand and be able to explain to anyone you talk to why you made the trade. Before you buy or sell, ask yourself why you are doing it. What is the core explanation for buying or selling. If you can’t come up with an answer, don’t do it.