NEW YORK (TheStreet) -- While counter-intuitive, especially for bargain hunters, buying a stock as it's making new highs is usually more advantageous over buying a stock at a 52-week low. If you're like me, you would rather buy while a stock is cheap instead of expensive.
A stock at a high today is expensive, but if it makes new highs next week and the following week later, isn't the stock cheap looking forward? Of course, it is, and smart investors know that going with the flow is exponentially easier than fighting the trend.
I trade both. I buy stocks making new highs and making new lows. I've also made infinitely more money buying strength than I have catching falling knives. The trick is knowing what stocks are reaching an exhaustive pivot point, and those with legs able to continue higher. We don't have a crystal ball, but we can use historical chart results to position our portfolios like a casino and only take bets when we have the best of it.
During the process of selecting companies, I utilize the following criteria:
- A minimum trading threshold eliminates the thin stocks.
- Improving year-over-year results relative to the stock price increase.
- Analyst price targets that are higher than the current price.
- Low short interest: I consider short sellers to be the smart money. There is no reason to bet against them when we have plenty of stocks to pick from.