| 3 Steps To Choosing Stocks That Will Profit |
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| Written by James Spacey |
| Friday, 12 November 2010 17:03 |
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Choosing stocks is a complicated process. Every investor goes about it a different way. But if you want to be able to select profitable stocks having some general steps to follow is important and helps you minimize risk. So let me outline three possible steps you could take.
Choosing stocks is a complicated process. Every investor goes about it a different way. But if you want to be able to select profitable stocks having some general steps to follow is important and helps you minimize risk. So let me outline three possible steps you could take. Step 1. You need to set up a time frame and a purchasing/selling strategy first. This is the step that is most important because it is the foundation of your trading process. Let me give you an example to illustrate. Long term investors have strategies in place that take into account a company's long term competitive advantages and deep history of growth. They would take into account decades of data and forecast based on a companies deepest strengths and weaknesses. Shorter range investors might consider some of these alternatives: a. Momentum Trading Strategies: these strategies are based on recent analysis of a stock's price and volume. It is a common strategy for short term investors. It works by looking for stocks that have been consistently rising in price in a smooth fashion and where there is an expectation that at least for the short term, this will continue to happen. b. Contrarian Strategy: this is a strategy that looks a short term sudden drops in prices caused by sudden announcements from a company of bad news. Because the stock market is not efficient prices don't always represent true value. When panic selling has occurred a stock's price will often drop below market value. Using candlestick analysis Contrarian traders can identify this situation and may buy on expectation of a reversal of price. Step 2. You should use a form of software that has filters to narrow down your research. Many types of online programs and downloadable software can screen in or screen out different types of stocks according to your criteria. This makes the process of concentrating on your timeline and price much more efficient. Step 3. Put into place a diversification strategy. There are many ways you could diversify your portfolio. One example is Markowitz analysis. This is a tool to help you identify the proportions of each stock to buy in one portfolio. Making sure you have diversity in your portfolio is essential to minimizing risk and loss. The three steps I've outlined are just preliminary considerations for traders new to the stock market. You should make it a priority to continually improve your education about financial markets so that you can expand upon these basic steps. Doing so will make sure your confidence and success continue to grow. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. James Spacey writes about a variety of topics including pharmacy technician employment and the over-the-counter market. This article, 3 Steps To Choosing Stocks That Will Profit is released under a creative commons attribution licence. |