Tuesday, April 5, 2011

Three Steps To Worthwhile Stock Picking

By Hj.Khoirul Sholeh

Stock picking is a difficult process and speculators have alternate approaches. Nonetheless it is sensible to follow general steps to reduce the danger of the investments. This paper will outline these simple steps for picking hi-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 Methodology . This plan is to go looking for over-reactions in the stockmarket. Researches show that market isn't always efficient, meaning costs do not necessarily exactly represent the values of the stocks. When a company publishes a bad news, folk panic and price regularly drops below the stock's fair value. To choose whether a stock over-reacted to a stories, you must glance at the chance of recovery from the impact of the bad news. For instance, if the stock drops twenty percent after the company loses a legal case which has no permanent damages to the business's brand and product, you can be assured the market over-reacted. My guidance on this tactic is to get a list of stocks that have latest drops in costs, investigate the aptitude for a reversal ( thru candlestick research ). If the stocks demonstrate candlestick reversal patterns, I am going to go thru the most recent stories to research the reasons for the most recent price falls to pinpoint the existence of over-sold prospects.

Step two. Conduct researches that give you a variety of stocks that's consistent to your investment timeframe and technique. There are countless stock screeners online that may help you to find stocks according to your requirements.

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 three 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 would provide a sense of confidence that helps you to make better trading decisions.

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