| Learning how to pick the best stocks to buy can be | | | | The next stage is to establish the sectors which |
| a daunting process even for those who have been | | | | make up the indices and find the ones that are |
| trading for some time, but this need not be the case. | | | | performing well, and those that are doing badly – |
| The first question we need to ask ourselves is | | | | clearly we want to find the best stocks in those |
| “why are we buying” which is an obvious | | | | sectors that are doing well and in a long term |
| question but one which many traders and investors | | | | uptrend. |
| do not ask. For example a long term buy and hold | | | | Now we start to look at the individual stock charts |
| investor would have a very different buying criteria | | | | and at this stage the only technical indicators I use |
| to a short term day trader or an equity option | | | | are volume, simple moving averages combined with |
| writer, so before rushing in to buy our stocks, we | | | | support and resistance levels. Having identified some |
| need to have a very clear idea of our goals and | | | | possible prospects the stocks are then placed on a |
| objectives for the stocks we are proposing to buy. | | | | watch list and monitored for a daily 2% increase in |
| This article looks at the steps needed to select | | | | price. |
| stocks for a long term buy and hold strategy for | | | | How long they remain on the watch list will depend |
| investment. | | | | on the chart but, assuming an individual stock looks |
| There are, of course, many "black box" solutions and | | | | like a possible buy, there is still some more work to |
| get rich quick schemes claiming to give precise buy | | | | do. It is important to look up dividend and earnings |
| and sell signals. Whilst these systems may work | | | | dates as well as director dealings as these may give |
| some of the time, over longer periods they | | | | us clues or warning signals as to whether this is in |
| eventually fail, as the markets are essentially driven | | | | fact the best time to buy. |
| by factors other than statistical analysis of historic | | | | Finally when placing the buy order we always have a |
| data. The fact that something has occurred in a | | | | stop loss in place in case the price trend suddenly |
| particular way in the past, is no guarantee that it will | | | | reverses. Overall we are looking to have a balanced |
| behave that way in the future - it this were the case | | | | portfolio of stocks in a variety of sectors - we don't |
| there would be many rich investors around the world! | | | | want all our eggs in one basket!! |
| From my own experience I have found over the | | | | The only software that I use for the above analysis |
| years that the simpler the system for selecting | | | | is a simple end of day data charting package - this |
| stocks the better and the good news is that virtually | | | | allows me to run the required filters (either by sector |
| all the information you need is now freely available on | | | | or by price movements) and to do all the analysis of |
| the internet. All that is required is some effort, hard | | | | support and resistance and moving averages that I |
| work and lots of practice. The process I use to | | | | require. |
| identify good stocks to buy is largely a technical | | | | In essence the process starts with the macro and |
| approach, but also includes elements of fundamental | | | | moves down to the micro in a series of stages, using |
| analysis at the macro level. The process is fully | | | | both technical and fundamental data. Although not |
| explained on my site, but the principles are as follows. | | | | easy it is a simple process which I have used for |
| The first step is to consider the economy of the | | | | many years with great success. For new traders I |
| country where you are investing, as some stocks | | | | would also suggest practising either by paper trading |
| and sectors perform better in recession than in | | | | or using a free online stock trading game, as it allows |
| expansion, and vice versa. For example, utility stocks | | | | new traders to try out strategies, understand the |
| generally perform well in early recession as the | | | | various markets, learn how to place orders, and to |
| professional money is looking for guaranteed income | | | | become comfortable with all the terminology of |
| streams. At the moment the gold price is rising as | | | | stock trading. |
| frightened investors look for a safe haven. | | | | To be a successful stock trader you need to know |
| The first step is to look at the main indices to | | | | the best stocks to buy - success lies in the effort |
| establish a longer term view from the charts. In the | | | | you put in at the start - I hope the above helps a |
| US this would be the Dow 30 and the S&P500. In | | | | little! |
| the UK it would be the FTSE 100, 250 or 350. | | | | |