| 3 Steps To Profitable Stock Picking |
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| Written by George Priestley |
| Thursday, 28 October 2010 11:44 |
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Stock picking is a very complicated process and investors have different approaches. However, it is wise to follow general steps to minimize the risk of the investments. This article will outline these basic steps for picking high performance stocks.
Stock picking is a very complicated process and investors have different approaches. However, it is wise to follow general steps to minimize the risk of the investments. This article will outline these basic steps for picking high performance stocks. Step one. Decide on the time-frame and the general system of the investment. This step is highly important as it will dictate the sort of stocks you purchase. Suppose you decide to be a long term investor, you would want to find stocks that have sustainable competitive advantages along with stable growth. The key for finding these stocks is by looking at the historical performance of each stock over the past decades and do a simple business S.W.O.T. (Strength-weakness-opportunity-threat) analysis on the company. If you make a decision to be a short term financier, you want to stick to one of the following techniques : A. Momentum Trading. This plan of action is to search for stocks that increase in both price and volume over recent times. Most technical analyses support this trading system. My information on this plan is to go looking for stocks that have demonstrated stable and smooth rises in their costs. The concept is that when the stocks aren't volatile, you can simply ride the up-trend till the trend breaks. b. Contrarian Strategy. This strategy is to look for over-reactions in the stock market. Researches show that stock market is not always efficient, which means prices do not always accurately represent the values of the stocks. When a company announces a bad news, people panic and price often drops below the stock's fair value. To decide whether a stock over-reacted to a news, you should look at the possibility of recovery from the impact of the bad news. For example, if the stock drops 20% after the company loses a legal case that has no permanent damage to the business's brand and product, you can be confident that the market over-reacted. My advice on this strategy is to find a list of stocks that have recent drops in prices, analyze the potential for a reversal (through candlestick analysis). If the stocks demonstrate candlestick reversal patterns, I will go through the recent news to analyze the causes of the recent price drops to determine the existence of over-sold opportunities. Step two. Conduct researches that give you a variety of stocks that's consistent to your investment timeframe and strategy. There are countless stock screeners on the web that will help you find stocks according to your wishes. Step three. Once you've a catalogue of stocks to buy, you'd need to expand them in a fashion that gives the best reward / risk proportion. A technique to do this is conduct a Markowitz research for your portfolio. The research will give you the proportions of money you need to allot to each stock. This step is critical because diversification is among the free-lunches in the investment world. These steps should get you going in your search to consistently earn money in the stockmarket. They may deepen your understanding about the financial markets, and would provide a feeling of confidence that helps you to make better trading choices. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Learn more about cheap stock broker. Stop by Author Name"s site where you can find out all about penny stocks to watch and what it can do for you. |