Picking a Stock can be overwhelming and investors have many different approaches. It is always a good idea to have a strategy to help alleviate some of the stresses and minimize the risk of your stock investments. In this article, I will to give you 3 general tips for picking a stock that can potentially make you a huge profit.
First of all, you need to decide on the time frame and a general trading strategy for your investment. If you don’t have a timeframe or strategy, you may want to check out my vlog in this hyperlink ( https://www.youtube.com/watch?v=bPpcanfpBH4 ). Let’s say you have chosen a long term trading strategy...This means you would want to find a stock or stocks that have sustainable competitive advantages along with stable growth over a long timeframe. The key for finding these stocks is by looking at the historical performance of each stock over the past few years or decades. On the contrary, if you decide to be a short term investor or swing trader, you might want to follow a Momentum Trading strategy. A useful Momentum strategy is to look for stocks that increase in both price and volume in the past days, weeks, and/or months depending upon your timeframe. In my experience in swing trading, it is important to look for stocks that have demonstrated stable and smooth rises in their prices, rather than one day spikes that can be based solely on news or rumors. While those spikes can be very useful when day trading it is not a great idea when looking at a short term swing trade opportunity.
The next tip when picking a stock is to conduct some type of research based on your investment timeframe and strategy. There are numerous free stock screeners on the web that can help you find stocks according to your needs. The stock screener I prefer is http://www.stock-screener.org/ . Let it be noted that I am in no way affiliated with that site, it is just the free screener I find best. You may also have an Online screener provided by your brokerage firm. Check into it, stock screener are a great way to analyze an investment before jumping in. See if the stock your choosing is trading above or below the moving average. Look to see if the MACD and STOCHASTIC of a stock are bullish or bearish.
Once you have a list of possible stocks to buy, you would need to diversify them. The 3rd Tip is all about Diversifying your portfolio and finding a way to possibly lower the amount of risk your stock account is taking on. An easy way to do this is by performing analysis on the different industries that make up your stock list. If you notice too many stocks in one particular industry, take the weaker securities off the list and research securities in different industries. This tip is crucial because diversification is a powerful technique to reduce major loses when trading. One of the main goals when trading stocks is preservation of capital; always keep that at the forefront of your mind when trading stocks.
These 3 steps should get you started in your quest to consistently make money in the stock market. They will deepen your knowledge about the financial markets, and will provide a sense of confidence that helps you to make better trading decisions.
To recap the 3 Tips:
Tip 1 - Decide on a time frame for the investment!!!
Tip 2 - Conduct some research using a Stock Screener!!!
Tip 3 - Diversify!!!