Once you determine which business cycle the economy is currently in you can start researching for a trade. It is best to have some sort of a system in place that will be used before EACH trade. Here is a simple 5-step formula to help get you started. Go ahead and check out the Best Ways to Research Stocks Before Investing in them.
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The 5 Steps to Research Stocks Before Investing:
1. Find a stockThis is the most obvious and most difficult step in stock trading. With well over 10,000 stocks to trade, a good rule of thumb is to consider the time of the year. For example, as I write this, it is the beginning of spring. It would make sense to consider stocks that traditionally make runs, or slide if you are bearish, during this time of year.
2. Fundamental AnalysisMany short-term traders may disagree with the need to do ANY Fundamental Analysis, however, knowing the chart patterns from the past and the news regarding the stock is relevant. An example would be earnings season. If you are planning on playing a stock to the upside that has missed its earnings target the last 3 quarters, caution could be in order.
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3. Technical AnalysisThis is the part where indicators come in. Stochastics, the MACD, volume, moving averages, RSI, CCI, support levels, resistance levels, and all the rest. The batch of indicators you choose, whether lagging or leading, may depend on where you get your education. Keep it simple when first starting out, using too many indicators, in the beginning, is a ticket to the land of big losses. Get very comfortable using one or two indicators first. Learn their intricacies and you’ll be sure to make better trades.
4. Follow your picksOnce you have placed a few stock trades you should be managing them properly. If the trade is meant to be a short-term trade watch it closely for your exit signal. If it’s a swing trade, watch for the indicators that tell you the trend is shifting. If it’s a long-term trade remember to set weekly or monthly checkups on the stock.
TRENDING: How to Avoid Insurance Fraud and Stay Legal.Use this time to keep abreast of the news, determine your price targets, set stop losses, and keep an eye on other stocks that you may want to own as well.
5. The big pictureAs the saying goes, all ships rise and fall with the tide. Knowing which sectors are heating up stacks the chips in your favor. For example, if you are long (expecting price to go up) on an oil stock and most of the oil sector is rising then more likely than not you are on the right side of the trade. Several trading platforms will give you access to sector-wide information so that you can get the education you need.
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