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If you’ve read our other post, “Investing is Not Trading,” then you understand that picking stocks that are tradeable is the most important factor to making a successful trade.

Stocks have their own personalities, just like people. Some companies are young and adventurous; their stock reflects that personality and grow fast in a very short timeframe. Some companies are in their senior years – they move slow but are very wise because they’ve been through everything. They have the reliability of a sunrise. You may be bullish both these companies, but only one may make a good trade.

A bullish stock that takes twenty years to move 20% is not a good trade. But it may make a great long-term investment stock, especially if it’s paying a dividend that gets increased every year that’s 4x what you could get at a bank savings account.

Stocks that make good trades have a good amount of volume (e.g. an average daily volume over 100K) and a good amount of volatility. You’re looking for big price moves (e.g. minimum 5% so you can get in and out relatively quickly).

Even once a stock meets these most basic criteria of being considered “tradeable,” it does not mean that you should immediately place a trade that same day. While this sounds obvious, many traders make the mistake of getting overly excited about a new stock they found because it shows up on their screener, thinking it’s time to enter a trade immediately. This could not be further from the truth – fundamentals, where the price is located relative to its long and short-term patterns are all considerations that must be reviewed before placing that trade.

Don’t try to force a stock to be something it’s not. The market dictates its natural flow; your job is to identify that flow and use it to your advantage.

You’ve probably heard the truism, “The market can stay irrational longer than you can stay solvent.” Markets by nature are subject to human opinion, more specifically an opinion on what might happen in the future – a good future means more buying, a not-so-good one leads to more selling.

When it comes to money, people make irrational decisions. A good company with good fundamentals can trade down with the market or get caught up in the bad perception at an industry level even when it may have a standout business model.

Price action is the flow of buy and sell orders represented by the price movements for that ticker. A company can have blow-out earnings and jump 10% after hours, then suddenly tank 15% the very next minute for no good reason. Price action is the pulse of the stock. Sometimes it can just lazily move throughout the day with little volume until one breaking story doubles the trade volume in a matter of minutes.

A stock with a very high average daily volume (tens of millions of shares) is a stock that has a lot of opinions from the market. These opinions impact price action. This chaos can cause a stock to move with no logic whatsoever and your 10, 100, or even 1000 shares is not going to change price movement in your favor.

This is why stop losses and other mechanisms to protect your basis (or minimize your losses) are critical when it comes to trading. New traders buy a stock and hope for the best – when the stock turns they just lose all their capital. Good traders know they can’t fight price action, and when the stock turns against them, they just need to take their minimal loss on the chin and move to the next trade.

Emotions and desperation lead people to believe they can influence price action, but unless you’re Warren Buffett, your trade is just along for the ride.