3 Tips For Selecting Profitable Stocks

Choosing stocks is a complicated process. Every investor goes about it a different way, some choose a penny stock broker and other go it alone. But if you want to be able to select profitable stocks from an over-the-counter market having some general steps to follow is important and helps you minimize risk. So let me outline three possible steps you could take.

Step 1. The first step is to establish a time frame and strategic direction for your investing. Getting this strategy in place is what is going to dictate the shares you purchase.

For example, long term investors would establish a strategy around finding shares in companies with long term competitive strengths and a history of stability when it comes to growth. Because they are buying with the long term in mind they would look at historical trends over past decades and analyze the businesses strengths and weaknesses.

Shorter range investors might consider some of these alternatives:

a. Trading on Momentum: looking for stocks that have increased in price and volume recently. This is a common and supported strategy for investing. It is underpinned by locating stocks with smooth rises in price with the goal of riding the trend upwards as the price continues to increase.

b. Using Contrarian Strategies: Contratrian strategies look for stock market over-reaction. The stock market is not efficient and so the value of a stock isn’t always a true representation of the value of the company. In a situation where a company makes an announcement, particularly when the news is bad, panic selling ensues and it isn’t uncommon for the price to fall below fair value. Contrarian strategies involve finding stocks that have had recent sharp falls and analyzing the possibility of a reversal. Candlestick analysis is often used in this strategy.

Step 2. Using research software or services that enable you to filter stocks according to your timeline and price. Many online programs are available to do this. They are very helpful in enabling you to screen out those stocks that aren’t going to meet your strategy.

Step 3. Ensure you diversify your portfolio sufficiently from the stocks you have analyzed and found match your strategy. A Markowitz analysis is one way of doing this. It will tell you the ratios in which you should buy different stocks to fill your portfolio. Diversification is a risk reduction strategy and essential for successful stock trading.

These are just preliminary steps to getting started trading in the stock market. They are principles only and should be expanded upon. You need to continually improve your knowledge of financial markets and trading strategies. Following these steps and advancing your education will improve your confidence and success as a trader.

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