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7 tips for finding your next great stock


Hunting for your next great stock pick is one of the most rewarding and exciting aspects of trading and investing. It is gratifying to discover what looks like a great opportunity and to watch as it blooms into a sizable winner.

Most market players approach stock picking at random. They discover an option by reading an article, hearing about it on TV or social media. Sometimes those options work well, but often they don’t.

Like most aspects of trading, you will increase your chances of successful stock picking if you have a clear strategy and apply it systematically. Here is my pick up process:

Define your goal. The first step to picking good stocks is to be clear about what you want to achieve. Are you looking for a long-term buy and hold investment or a day trade that you can hold for a few minutes? A great short-term option is often a terrible long-term option, and vice versa.

It is essential to understand the context of the overall market as you begin your hunt. Is this a bull market with strong positive trends creating momentum or a bear market where you are looking for counter-trend moves and big values ​​looking for support?

Have a clear goal in mind and that will narrow your focus as you dig deeper.

Read. The best way to find ideas is to read everything you can, but that’s just the starting point. The information out there can be overwhelming and it can be a challenge to separate quality information from sensational information that is just trying to get attention and clicks.

Sites like RealMoney.com and Sharkinesing.com will give you new stock ideas every day, but that’s just the starting point. It is up to you to determine if these stocks meet your needs and you must develop a strategy for trading them. Don’t expect others to make very important decisions for you. Identifying an interesting stock is just a starting point.

Follow the charts. One of the best ways to find great stock ideas is to look at hundreds of charts regularly. Price action tells you more about stocks than anything else. I watch every day stocks that are moving significantly with increased volume, then study the charts and try to discern why they are moving. Some of them could be great short-term trades, and a small number could be great long-term trades just starting to develop.

Scan, Scan, Scan. Most professional investors use scanning programs that allow them to enter various fundamental and technical criteria that will narrow down the selection process. MarketSmith, that Daily Business Investor manufacturing, favored by momentum and growth investors looking for stocks with relative strength and earnings. The picking process is much easier to apply using a MarkSmith scanner.

Finviz.com offers a simple and very effective scanner. It allows you to enter technical and fundamental criteria and scan the entire market for stocks that meet your criteria.

The trick to using a scanner is to develop search criteria that are broad enough so you don’t miss out on big opportunities, but narrow enough that you aren’t overwhelmed by the number of stocks.

Research. Once you’ve narrowed down your stock selection, the hard work of research begins. Review the charts carefully and determine the timeframes that best suit your trading. If your timeframe is short, you will likely focus primarily on chart patterns and instant catalysts for movement, such as news events and macro data. If you have a long-term time frame, it’s more important to understand the fundamentals and have an argument for what will drive a stock up over time.

Prepare your watch list. Many of the stocks you find may look interesting but aren’t ready to go. Put those stocks on the list and watch them closely. Get to know their personalities and how they move so you can do it when the time is right.

Finally, Execution. After you’ve done your job and identified what looks like an outstanding stock, go ahead and execute your strategy. Often the best approach is to start with a small initial position and then add as it grows.

I will discuss trading strategy extensively in future columns, but the most important thing to remember is that if you have found a good stock and it is doing well, it is time to press and try. profit maximization. If it doesn’t work, then cut your losses and move on. You will have many unsuccessful picks in your search for the next great stock.

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