3 Tips For Selecting Profitable Stocks

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Choosing stocks is a complicated process. Every investor goes about it a different way. But if you want to be able to select profitable stocks 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.

On the other hand investors with a shorter time-line might think about some of these strategies:

a. Momentum Trading: means identifying stocks where the price and volume traded has a stable history of increase in the recent past. Many analysts support this strategy. It is based on the principle that a smooth and steady incline in the share price will be likely to continue in the short term at least.

b. Contrarian Strategic Analysis: Contrarian strategy is the practice of looking for stocks that have been effected by an over-reaction to recent company announcements. This often happens when a company delivers bad news. The stock market isn’t efficient and so prices aren’t always a true reflection of value. Particularly when panic selling has set in a price will often drop below fair value. Contrarian traders will use candlestick analysis to identify stocks below market value and buy expecting a reversal.

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. The final step is portfolio diversification. Diversification is an essential element of any good trading strategy because it is the way traders minimize risk. Once you have a number of stocks that meet your trading criteria conduct a Markowitz analysis to determine how much money to allocate to purchasing each stock.

I hope these simple steps will be helpful. They are just basic concepts and you must remember that trading is a complex process that requires years of study and experience to master. Commit yourself to your development now. Having a firm strategy, a good education about financial markets and some experience will give you much confidence as you proceed.

You can probably tell James Spacey loves writing about how to make money online, but you might also be surprised to know he also publishes quality information about comparing car insurance (and heaps more).. Check here for free reprint license: 3 Tips For Selecting Profitable Stocks.

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Article Citation
MLA Style Citation:
Spacey, James "3 Tips For Selecting Profitable Stocks." 3 Tips For Selecting Profitable Stocks. 31 Oct. 2010. uberarticles.com. 7 Apr 2012 <http://uberarticles.com/finance/stocks-mutual-funds/3-tips-for-selecting-profitable-stocks/>.

APA Style Citation:
Spacey, J (2010, October 31). 3 Tips For Selecting Profitable Stocks. Retrieved April 7, 2012, from http://uberarticles.com/finance/stocks-mutual-funds/3-tips-for-selecting-profitable-stocks/

Chicago Style Citation:
Spacey, James "3 Tips For Selecting Profitable Stocks" uberarticles.com. http://uberarticles.com/finance/stocks-mutual-funds/3-tips-for-selecting-profitable-stocks/

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