Research is the Name of the Game.
I do most of my research after the day’s trading has finished. Firstly I look for stocks that have performed well today and add them to my prospect list. This number varies from time to time but the average number can be as high as 50 or so.
The reason for so many prospects is because only a small percentage will eventually match my entry criteria. So because of this I am entering new names continually on a daily basis. There is no restriction to which sector they belong to either. They could be the banking or the mining sector, I try not to have favourites, but I must admit I find this hard to do at times.
A great source of future prospects is “The Changes in Substantial Shareholders section.”This is where you can see who the big companies are currently investing in, usually in large amounts. Remember they are not buying for the fun of it. You can guarantee they have done their research properly and see it as a good investment for the future.
I also keep an eye out for positive company announcements. By watching these and the Changes in Substantial Shareholders You will sometimes be able to pick up on a takeover about to happen before the general market latches on to what is happening.
I have quite often just jumped on this stock for the ride, made my preset profit percentage and jumped off again. Not forgetting to put a stop loss in place in case the stock retreats as they quite often prone to do.
Another area that I like to keep an eye open for is when Directors are buying their own stock. This is a good indicator that they feel that the stock will be going upwards. I have never heard of a director buying their own stock to make a loss.
Like us, they are out there to make a profit. They are a lot closer to the action than we are, sometimes they have knowledge that is weeks ahead of any news or company announcements that are likely to be made. Who else knows better how a company is performing?
But also remember that they are human, therefore they can make the odd bad call like we are prone to do. All the same it is still a good guideline to go by used with your other criteria.
I then check out my list of future prospects against my entry criteria. This is a step by step plan that I have devised over time. It works for me, but it is best that you have one that you are comfortable with. Another reason is that my criteria are quite strict and would possibly not suit the average trader.
Basically if any stock does not match up to this criteria then it is put onto the backburner for review later on. (In other words I am keeping a second list of potential stocks for later on. So you always have a list of future prospects handy.)
With practice it is surprisingly how quickly you can look at a chart and see if the stock is a candidate or not. This way you can whittle the list down to 2 or 3 stocks.
How many stocks you invest in course depends on the amount of capital you have currently available for trading. So sometimes you may be restricted to just the one stock.
Quite often my funds are tied up and are not readily available; this is the case at the moment as I have been buying quality stocks at bargain basement prices. Even with these blue chip stocks, once my profit percentage is reached I sell them, no ifs buts or maybes
I do have a portfolio of select stocks that are paying healthy dividends. These are for the long term and I do not get concerned over the price fluctuations that are happening lately in the stock market.
When you do your research will ultimately depend on your work commitments or your other time constraints. It is really up to you as there are no hard and fast rules as to when you do your research.
The trick is to do it regularly until it becomes a habit, like riding a bicycle, the more practice you get the more proficient you become.
But most important of all DO ON YOUR OWN RESEARCH do not rely on anyone else’s.
I wish you profitable trading.