 |
 |
 |
 |
 |
 |
 |
 |
  |
How to Choose the Right Stock
Choosing which stocks to invest your money in can seem like a daunting task. Depending on what your goals are with your investments, it doesn’t have to be complicated at all. Many traders don’t take the time to learn about the companies that they invest in. A little knowledge can go a long way in helping you to choose where to put your money.
Of course the type of trading you are planning on doing may make a difference in where you choose to put your money. Day traders will have a much different strategy for choosing a stock, than the regular longer term investor. Day traders tend to focus on highly liquid stocks that vary greatly in value over the course of hours or days. Since day trading can be a fairly risky business, we will focus on choosing stocks for the longer term.
Step 1
Consider General Performance of the Market
First you should look at the general performance of the market in general. Is the whole market in an uptrend or downtrend? This is less of a factor in choosing what to invest in, and more of a factor in deciding when to invest. If you plan on investing for a shorter term (swing trading) this becomes especially important.
Step 2
Read the Charts
Next you should learn to read the charts. Looking at a few years of history of how a company has performed on the stock market can indicate a company’s stability. Be cautious of companies that tend to have huge jumps in prices. A company that goes up quickly can just as easy go the other way. What you are looking for, are the companies that trend upward over the long term. Slow stable climbs in value are an excellent indication for the long term investor. Charts become very useful for the shorter term investment as well. When looking at a chart over the long term, it becomes easy to spot patterns in the shorter term. Reading the charts is the single most important thing to learn. Alone they can be a tool for choosing your investments and timing your investments.
|
|---|
Step 3
Learn about the Company
Another important step in picking a stock is learning about the company itself. What kinds of products does the company sell? Are their products something that is always in demand, or are they selling something that is just a fad? Is the company performing well because of good leadership? Asking questions about the company and finding all the information that you can is a good way to prevent bad choices.
Step 4
Watch the News
After the last couple steps you should have found a few companies to choose from. The next step then becomes finding news about the stocks you are considering. Watching the news before (and after) you have invested your money can keep you on top of knowledge that may change the stocks trend. From the news you can learn much about a company: is the company moving forward, are they leaders in their field, is there innovation in their ideas, and you can also find out about things that may affect their stock negatively.
Step 5
Research is important
If you follow these few simple steps you can choose stocks that will grow your investment portfolio. Research takes the guess work out of investing, and it limits your risk when you’re hard earned money is on the line.
© 2007 Money Educate, All Rights Reserved