With the relentless instability of the stock market, a market pullback can seem like an inevitable outcome. Nonetheless, it’s important to remain vigilant and make sound decisions. In order to make the best decisions and prepare for a market pullback, you’ll need to run certain scans.
First, set up a market watch list. This list of stocks should include those you’re currently trading and those you’ve had your eye on before the pullback. You should track the full range of stocks, even those that you don’t currently own. This watch list will provide a comprehensive overview of the current market so you’re not surprised by a dip in the value of any particular stock.
Once you’ve composed your watch list, you’ll need to look for stocks that may be overvalued. This could include stocks that have been consistently priced higher than their peers, or stocks that have gained tremendous value quickly. When analyzing a stock, look at its performance over the course of the last six months and consider its present value and projected value. If a stock is priced way higher than its peers or has been growing in value too quickly, it may be a sign of potential risk.
Next, you’ll need to look at stocks that may be undervalued. With a market pullback, some stocks will drop in value faster than others. If you’re able to identify stocks that have dipped in value but still have a promising forecast, this could be a great opportunity for a buy. Again, look at the full range of stocks in your watch list, and consider each stock’s projected and present values.
Finally, you’ll want to look for stocks with high short float ratios. A high short float ratio may indicate a bearish market outlook causing many traders to aggressively short the stock. If you are able to identify stocks with high short float ratios, this could be a sign of a potential market pullback and it may be best to move cautiously in such cases.
Market pullbacks can be a stressful time for traders and investors, but with these scans and proper research, you can reduce the risk of suffering a significant loss and position yourself to take advantage of potential opportunities. Keep a close eye on the market and conduct regular research to ensure you are prepared for any volatility the market may bring.
