How to Pick Strong Stocks from Limit-Up Boards

In the stock market, the price limit-up is one of the focal points of investors' attention. It not only reflects the market's strong demand for a particular stock but also serves as an important indicator in technical analysis to judge whether a stock is strong or not.

However, not all stocks that hit the price limit-up are strong stocks. Investors need to filter out the truly strong stocks with continuous upward potential through a series of technical analyses and market observations.

Here are some suggestions to help investors select strong stocks from the price limit-ups:

1. Observe the continuity of the price limit-up

Consecutive limit-ups: Stocks that hit the limit-up consecutively often show the market's strong optimism about the stock. In this case, the stock's upward momentum is strong and may become a strong stock. However, it should be noted that adjustments may occur after consecutive limit-ups, and investors should pay attention to changes in market sentiment.

Number of limit-ups: The more times a stock hits the limit-up, the more it indicates the market's strong pursuit of the stock. However, investors should also be wary of the risks of excessive speculation, especially when the market sentiment is overheated, which may lead to a rapid pullback.

2. Analyze the situation of the limit-up orders

Order volume: The larger the order volume at the limit-up, the stronger the buying power and the more sufficient the stock's upward momentum. Stocks with a large order volume are more likely to maintain the limit-up status even when encountering selling pressure.

Order changes: Observe the changes in orders during the limit-up process. If the order volume continues to increase, it indicates that the buying power is strengthening. If the order volume decreases, especially with a large decrease, it may indicate a weakening of the buying power and a risk of a stock pullback.

3. Pay attention to changes in trading volumeTrading Volume: The trading volume on the day of a price limit up can reflect the market's attention to the stock. If the price limit up is accompanied by an increase in trading volume, it indicates a significant inflow of market funds and a strong upward momentum for the stock. However, if the trading volume suddenly increases but the price limit up cannot be maintained, it may suggest that there is considerable divergence in the market's view of the stock.

Price-Volume Relationship: After a price limit up, if the stock continues to rise and the trading volume remains stable or moderately increases, it indicates a sustained positive sentiment towards the stock, which may continue to be strong. If the trading volume suddenly increases significantly but the stock price struggles to rise, it may indicate a risk of a pullback for the stock.

4. Analyze Industry Background and Market Environment

Industry Momentum: According to research by Guoxin Securities, if a stock experiences a significant increase and its industry also shows a strong upward trend, the stock is likely to have stronger subsequent upward momentum. Therefore, selecting stocks that resonate with the industry's upward trend can increase the probability of picking out strong stocks.

Market Sentiment: The overall market sentiment has a significant impact on individual stock performance. When market sentiment is high, stocks with price limit ups are more likely to maintain an upward trend; when market sentiment is low, even stocks with price limit ups may face significant pressure for a pullback.

5. Auxiliary Technical Indicators

Moving Average System: Observing whether the stock price is above the short-term moving averages, such as the 5-day and 10-day moving averages, can serve as a sign of the stock's short-term strength.

RSI Indicator: The RSI indicator can help determine whether a stock is in an overbought state. If the RSI indicator is at a high level but no clear overbought signal appears, it indicates that the stock's upward momentum remains strong.

MACD Indicator: The golden cross and death cross of the MACD indicator can serve as auxiliary tools for judging changes in stock trends. When a golden cross appears, the stock may enter an upward trend; when a death cross appears, the stock may enter a consolidation or downward trend.

6. Pay Attention to Policies and FundamentalsPolicy Support: Changes in policy can have a significant impact on certain industries and stocks. By selecting industries and stocks that are supported by policy, investors can reduce investment risks.

Fundamental Analysis: Although price limits primarily reflect market sentiment, stocks with strong fundamentals are more resilient during market adjustments. Therefore, by combining fundamental analysis and selecting stocks with stable earnings growth and promising industry prospects, the probability of choosing strong stocks can be increased.

7. Risk Control

Setting Stop-Loss Points: Even if a strong stock is selected, it is important to set reasonable stop-loss points to control risk. If a stock shows clear signals of a significant pullback, it is timely to cut losses.

Diversified Investment: Do not concentrate all funds on a few stocks; diversified investment can reduce the risk associated with a single stock.

Through the above methods, investors can filter out strong stocks with real potential for sustained growth from price limits. However, it should be noted that stock market investment carries risks, and investors should make cautious decisions based on their own risk tolerance and investment objectives.