Investing has become the common norm for people to make money. Choosing the best stocks is very important to make profits. Many investors spend a lot of energy and time identifying the right stock exchanges. As a lot of stocks are available in the market, it is normal for an investor to get confused. These steps will help you to choose the right stock exchange without much hassle.
- Analyze the market
Try to analyze the movement of the market before choosing a position. Researchers say that around 75% of the total stocks move along with the market. It is similar to a rising tide that lifts all the boats in the water. It is better to buy stocks during the high movement of the market. It will increase your chances for a profitable trade.
The next step is to look at the moving average of the main index. It will display the common trend in the rate over a particular period which determines the momentum of the market. For example, if you fix your trading time frame to two months, you have to consider the S&P 500® Index’s 50-day moving average to use the general direction of the market in that given period.
The events that can move the market must also be considered which can have an impact on your trade like the announcement of earnings or policy meetings of the Federal Reserve.
- Find a sector
After getting an idea of the market, look for sectors or industries that are promising. An effective method is to monitor the performance of all the 11 sectors mentioned in the GICS or Global Industry Classification Standard. Find the one that has excelled in the past few months. If you find any possible hurdles in the future, look for industries or sectors with defensive features. Health care and Utilities are one such sector.
- Filter stocks
After choosing a sector, you have to find individual stocks. You may filter each stock by its performance, sector, analyst rating, etc. You can also focus on value or growth candidates to shortlist the stocks. Growth stocks will have more valuation reflecting the potential of the company, while value stocks are lower in price proportional to the existing fundamentals. Investors looking for growth may filter factors like projected or historical growth rates and if the focus is on value, you must consider price-to-earnings ratios and low price-to-book.
- Review the standards
Having shortlisted the available candidates, you have to go through the details. Check each company’s investment commentary. Look at whether they possess any red flags or any issues affecting the company. The ratings, financial statements, and earnings must also be reviewed.
- Look for the charts
After shortlisting the most promising candidates, consider the trend line of each stock. It is commonly suggested to buy them at an uptrend. However, some stocks are better when they decline due to particular reasons.
These steps will casually fall into the process when you become more experienced in selecting stocks.