How to Go Looking For Trading Opportunities.

Firstly you need to have a criteria or a trading plan worked out previously that will apply to each stock you look at prior to selection.

Remember that the trading techniques that you use in a “Bull Market” are not necessarily suited to a “Bear Market.”

The data you use best is yesterdays close of market data i.e. Closing market price. There is no point trying to research stock prices while the market is open for you can find yourself chasing share prices. Also it can be very distracting if you are trading in between doing research, for I have found myself buying and selling for emotional reasons. And that can be disastrous.

So the main reason that you do all your research after the close of trading is firstly to have no distractions and secondly the prices and statistics are stationary. This enables you to make correct decisions.

Your data needs to be updated on a daily basis for the market is constantly changing and if for any reason you don’t do so you could find yourself paying out more than you should have or even worse buy a stock which is now heading downhill.

There are no hard and fast rules for finding profitable stocks. A lot can depend on what sort of trader you are and the type of market you select to trade in.

Here are some basic suggestions, but it is up to you to decide what criteria you ultimately want to use to select your stocks plus it has to be one that you are comfortable in using.

1. Firstly I like using my own two eyes. They are cheap to keep and quite reliable in looking at a basic chart, (I prefer candlesticks myself) and you can tell in a flash whether the stock is going up, down or sideways.

2. Performance: - How profitable is the company? How are they performing? Are they growing or just marking time?

3. Accounting: - The bottom line again is how much profit are they making? Is it on the increase or declining? Are they paying a regular dividend?

4. Some fundamental traders like to back up their analysis by using some charts while the more technical traders use a more comprehensive use of charts and various indicators.

(For more in depth explanation of charting please visit the free download section.)

5. Ranking: - Who are the best performers today compared to yesterdays?

                      Who are the best performers over the last 3 to 5 days?

                      Who are the best performers over the last week or so?

                     Which are the stocks which have made new highs or lows?

Remember that your approach to picking stocks will be an individual blend of criteria that you personally feel comfortable using.
 

Other Factors to Consider.

This first group is to establish your break even point.

1. Assess the risk.

Is this trade a short term or a long term trade? For the longer the trade is open the greater the risk of it moving in a way we did not anticipate.

2. Decide the position size.

This can depend on the share price. For instance if you have $5,000 to invest then that means either 5,000 at a $1.00 each or 500 at $10 each.

3. Assess the impact of brokerage.

If you have invested only $500 and the brokerage is $50 for buying and selling then  you have to make 10% profit just to break even.

4. Consider the tax implications.

When you make a profit you are liable for capital gains tax unless of course you can offset it with previous losses.

The second group is to establish Time and Risk.

1. Setting realistic trade objectives i.e. profit.

For instance the number of shares available might restrict the number of shares needed to make a reasonable profit.

2. Estimate the time in the market or how long for the trade.

The longer in the trade increases the risk of the market turning against you.

3. Assessing downside risk: - setting in place a stop loss.

If the trade fails and prices go against you, how much can you afford to lose? And is this comparable to your stop loss point?

4. Meeting your money management objectives.

Does the trade and intended position size meet with the capital allocated for the trade?

Does the trade have enough realistic potential profit? In other words what are the financial objectives for this trade?

Knowing when to exit a losing trade is imperative as is knowing when to exit a profitable one.

Ultimately the reason you are trading in the market is to make a profit. If you don’t research properly and all it will take is a succession of losses to deplete your trading capital.

Trading discipline to minimise losses and to maximise profits is the key to trading success. 

HOW TO FIND POTENTIAL PROFITABLE STOCKS.

There first thing is knowing where to look. It is quite amazing sometimes where a tip or information will come from.

Below is a list which will be a basic starting point. You will develop your own sources as your own experience grows.

1. Newspapers. Usually can be found in the business section, but can be found elsewhere particularly if they have done something out of the ordinary and the Media have got wind of it.

2. Specialist Magazines.    The main ones in Australia can be found in any newsagency .The most popular being, “The Smart Investor” this comes out on a monthly basis.

3. The Internet. This is particularly an area where you will find a wealth of information, sometimes too much.

 I receive the vast majority of my information in the form of newsletters. This arrives by E- Mail on a daily basis. I then sift through it and keep the information I want and discard the rest.

4. Other Media. Radio and television can be useful sources of information. Usually on the nightly 6 pm news and the various finance/ business programmes that abound on Foxtel and other finance channels.

5. Friends, relatives and casual acquaintances. I have found by personal experience that once it is known that you are interested in the share market; people will go out of their way to give you their latest tips and information.

I never knock them back but I always do my own personal research first before I take it any further.

6. Personal Experience. This is hard to define. I call it “Being tuned in.”  As I can be looking for one thing and something else entirely different will turn up.

 As I have stated before you never know where that little bit of information is going to spring from.

This only a basic guidelines as you will develop your own sources, as your experience grows and time progresses.

Strudy is a keen successful share trader on the Australian Stock Market. Visit his weblogs for more free articles and useful information at both http://www.asxnewbie.com and http://www.aussiewealthreview.com you just never know what “Valuable Information” you will find there.