Are you tired of relying on professional stock-picking services, paid advisors, and other gurus to feed you the ticker symbols of companies that are ready to move, or set to take off, as their ads often boast? Many investors finally decide to take the leap and trust their own instincts, skills, and research. When you’re able to do that, you can make your own choices about which companies’ stocks are wise short-term or long-term selections.
Keep in mind that just identifying worthy corporate candidates is not enough. Becoming a well-rounded market enthusiast means acquiring skills that can turn those wise choices into solid profits. For instance, if you learn how to day trade, it’s even possible to earn a living from your efforts and safeguarding your funds by closing all positions by the end of the day. Likewise, learning how to short stocks gives you the ability to make money in down-trending markets. Still, getting off to a good start means mastering the basics, and the most fundamental skill of all is screening companies and deciding which shares you want to buy, either as a day, swing, or long-term trader. Follow this four-step process to come up with a short list of prospective buys. To find more about the subject a learn about the good practices from professionals, you can also visit thestockdork.com
Choose a Sector
It’s perfectly acceptable, and quite common, to choose companies from all the major sectors, but many people prefer to specialize in a field they already know well, like health care, financial firms, or manufacturing corporation. If you have a solid background in retail, for example, consider making that your area of expertise and limiting your purchases to that sector.
Calculate Earnings Per Share
You can find EPS data just about anywhere on the internet for any number of companies. Or, if you want to crunch the figure for yourself, simply divide a corporation’s total earnings by the number of outstanding shares. If the current price is above the EPS, consider moving on. If the going price is below EPS, you’re looking at a potential bargain. Using EPS as an initial screening tool is one of the oldest of the fundamental tools for choosing where to put your money.
Use Price Range Cutoffs
How much do you feel comfortable spending on a single share? Five dollars, ten, one-hundred? Take an honest look at your budget, account balance, and personal risk tolerance levels and decide. Many first-timers opt for a $5 to $20 range. It’s worth noting that some platforms, especially those that specialize in dividend-reinvestment programs, or DRIPS, allow members to purchase fractional shares, which mean price ranges don’t really matter much in those cases.
Identify the Trend
Look at one-year charts and use simple moving averages (SMA’s) to identify the general trend, either up or down. For short-selling, you will want to choose downward trending issues. Otherwise, stick to upward trending companies. The quick way to ID the direction is to examine 50-day and 200-day SMA lines. If the 50 is above the 200, the direction is upward. The reverse is true when the 50 is below the 200. Pay particular attention to crossover points, where the two lines intersect and one begins to rise above the other. These junctures are often ideal entry or exit points.