How to identify hot stocks

Introduction to Hot Stocks

What are hot stocks?

Hot stocks are shares that are highly sought-after due to continuous outperformance of the stock market as a result of positive financial performance. Such stocks are often hyped during an IPO, generating tremendous interest from investors. As the excitement builds up, investors join the frenzy, leading to an increase in demand for a specific stock and a decrease in supply. This usually results in a substantial short-term increase in the stock price.

 

 Even after the hype settles down, traders still try to sell the shares above the company's fair value, causing a decline in the share price. However, purchasing such stocks before they are listed can be highly profitable for early investors, despite the expensive price. Moreover, the excitement around an IPO can attract investors to the industry in which the company operates, leading to an increase in the stock values of related businesses. A stock can also be in high demand outside of an IPO due to the dividends it pays or impressive quarterly results that earn investor trust.

If you are looking for ways to identify hot stocks, there are a few indicators that can help you find the best stocks to buy today or invest in the future.

One of the indicators is price variation.

Regardless of the industry, a hot stock will see a sharp price gain. If you notice the share value rising rapidly, it might be the best share to buy.

Another indicator is rising volume.

You can determine whether a stock is hot by examining the trade volume associated with the upward price movement.

The Relative Strength Index (RSI)

RSI is also a popular momentum indicator that can serve as a trend indicator. If the RSI value is above 50, the stock or index is in a bullish trend, while a value below 50 indicates a bearish trend.

  

Read More About Indicators  

The Moving Average Convergence Divergence (MACD)

MACD is another useful indicator that takes advantage of the link between an exponential moving average (EMA) with a 26-period and a 12-period. You can use the MACD to determine when the stock gains momentum or when the acceleration ends.

However, it is up to the trader's initiative, combined with the above indicators, to use the signal effectively when considering the best stocks to buy today.

FAQs

How to identify the hot stocks on a daily basis?

To identify the hot stocks on a daily basis, one can consider looking at the top gainers at NSE for that particular day. For instance, if we consider 2nd August at 3 p.m., the top 3 gainers at NSE were Divi’s Lab, Nestle India, and Hindustan Unilever. These three stocks can be considered as the hot stocks of that particular day. However, it's important to note that the hot stocks change on a daily basis, so it's crucial to keep a regular check on the market trends.

What is value investing?

Value investing is a strategy that involves purchasing stocks that are undervalued in the market. These are stocks that are priced lower than their intrinsic value. There are different ways to identify undervalued stocks. One of the most common methods is through the Price-to-Earnings (P/E) ratio. If a stock has a low P/E ratio compared to its peers, despite having good fundamentals, it is considered cheap and a potential investment opportunity. Additionally, the price-to-book value ratio (P/B) can also be used to identify undervalued stocks. By analyzing these ratios, investors can make informed investment decisions and potentially earn profits in the future.

Another way to identify undervalued stocks is to look at the price-to-book value ratio (P/B) of a stock. Stocks with a low P/B ratio are likely to be undervalued and investing in these stocks can potentially lead to profits when the stock price rises. An investor who follows this strategy is Warren Buffet, who looks for stocks with a P/B ratio of 1.3 or less.