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Best Stocks To Buy, And How to Pick Them

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  • Best Stocks To Buy, And How to Pick Them

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    Learning how to pick the best stocks to buy can be a daunting process even for those who have been trading for some time, but this need not be the case, and the first question we need to ask ourselves is " why are we buying ?" An investor looking to buy and hold for 5-10 years, would have very different buying criteria to a short term day trader or an equity option writer, so before rushing in to buy our stocks, we need to have a very clear idea of our goals and objectives for the stocks we are proposing to buy. For the remainder of this article, I have assumed we are looking at stocks for a long term buy and hold strategy for investment.

    There are, of course, many companies offering "black box" solutions, get rich quick schemes, and software that will give you precise buy and sell signals. Whilst some of these systems may work some of the time, over longer periods they eventually fail, as the markets are essentially driven by factors other than statistical analysis of historic data. The fact that something has occurred in a particular way in the past, is no guarantee that it will behave that way in the future - it this were the case there would be many rich investors around the world!

    As a full-time technical trader myself, I have found over the years that the simpler the system the better, and virtually all the information I use is freely available on the internet. All that is required is some effort, hard work, and lots of practice. The process I use to identify good stocks to buy is largely a technical approach, but also includes elements of fundamental analysis at the macro-level The process if fully explained on my site, but the principles are as follows.

    The first step is to consider the economy of the country where you are investing, as some stocks and sectors perform better in recession than in expansion, and vica versa. As an example, utility stocks generally perform well in early recession as the professional money is looking for safe stocks with guaranteed income streams. Having done this the next stage is to look at the main indices of the country and to establish a long term view from the charts. In the US this would be the S & P 500 or the Dow 30, and in the UK the FTSE 100, 250 or 350. We then start to drill down into the sectors, looking at those that are performing well, and those that are doing badly - clearly we want to look for stocks in sectors that are doing well and in a long term uptrend.

    Now we start to look at the charts of stocks in these sectors to identify those performing well and in long term uptrends. The only indicators I use as this stage are volume, and simple moving averages. We are looking for any odd volume patterns, analyzing candle formations, looking for support and resistance levels, and any signs of a breakout. Having identified some possible prospects, we then filter these on a daily basis looking for a 2% increase in price on the day for stocks within our watch list. This highlights target stocks that are active. Before buying we would then look at possible earnings dates, dividend dates, directors dealings, and any other details that may give us clues or warning signals which we should be aware of before placing the buy order. Finally, when placing our order we always have a stop loss in place in case the price trend reverses suddenly. Overall we are looking to have a balanced portfolio of stocks in a variety of sectors - we don't want all our eggs in one basket!!

    The only software that I use for the above analysis is a simple end of day data charting package - this allows me to run the required filters ( either by sector or by price movements ) and to do all the analysis of support and resistance and moving averages that I require.

    In essence, the process starts with the macro and moves down to the micro in a series of stages, using both technical and fundamental data. It is simple and free and one that I have used for many years with great success. For new traders, I would also suggest practicing using a free online stock trading game, as it allows new traders to practice strategies, understand the various markets, learn how to place orders, and to become comfortable with all the terminology of stock trading.

    To be a successful stock trader you need to know the best stocks to buy - success lies in the effort you put in at the start - I hope the above helps a little!

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    "Step into the arena and hold on to your hat. Don't get discouraged if you don't make 8 trillion dollars in your first month. Trading is not a get rich quick scheme. Realize that trading is a skill and just like any other skill it takes time to learn. Have convictions in your decisions in life and trading. Ignore the comments and "advice" of those that have never traded a day in their life."

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    Good KARMA and positive energy abound.

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