That is a hard question and there is no simple answer to it – if you ask ten different traders this same question you are likely to get ten different opinions so what follows is simply an opinion and should not be regarded as advice!
I have several strategies at the present time. They are Long Term, Long/Short trend trades, Recovery Trades, Higher Risk, Swing Trades and finally Unexpected News.
- LONG TERM … I data mine on Sharescope for a 5 yr history looking at criteria for consistent growth in turnover, profit, EPS and debt. I then filter margins, cashflow per share and ROE. I end up with things like HFG (Hilton Food), PZC (Pz Cussons), DOM (Domino’s Pizza), ASC (Asos Share), HL (Hargreaves Lansdown), BRK (Brooks Macdonald), ROR (Rotork Share), WEIR (Weir Share), TSCO (Tesco) …….many others. I can’t hold them all so I select those with the longest history & best growth forecasts.
- LONG/SHORT….. I use as above but with emphasis on high forecast growth to select long trades. Short trades are selected by scanning through Sharescope charts and searching for downtrends. More recently I’m focusing on fundamentally over valued nonprofit making stocks that have been ramped to silly valuations a la Simon Cawkwell. I’m still short on most house builders.
- HIGH RISK …. I pick these up from posts on forums. I like Companies that are not profitable but could be next year. I consider all AIM stocks high risk. I end up with things like AFC (Afc Energy), AVN (Avanti Comm), BLVN (Bowleven Share), EKT (Elektron Share), GPK (Geopark Share), VGM (Vatukoula Gold), XEL (Xcite Energy), BGO (Bango), BLNX (Blinkx Share). I then apply technical analysis to get me in and out and in and out.
- RECOVERY TRADES…. I use Sharescope data mining for stocks in a down trend that are reversing with macd price divergence as per Smarm plus a stochastic reversal. I also trade the reversal of some of my stopped out short trades from the long/short portfolio. I then check the fundamentals. The latest signal is PURE.
- SWING TRADES… I have recently been revising my strategy here but basically I’m selecting stocks using Sharescope to find things that have pulled back in a long term up trend and are a macd buy. I then check there has been no recent bad news. They must give a profit target to stop risk of 2.5 to 1. I hold these to target or stop – usually many months.
- Unexpected News…I get these trades by reading the RNS releases every morning. I look at trading statements, interims & finals, drilling announcements and JORC announcements. I want above expectations on anything.
And these days its becoming very easy to keep track of developments in stock markets whether you use the web, news feeds or newer avenues like Twitter. What is important when picking shares is to trade only companies you understand. In particular, research the company’s business model, strategy and management as well as its financial performance-to-date, cash reserves and funding methods.
This question was also answered by Henry Atkins, technical chartist.
Find out exactly what the company does and as much about its sector as you can. The annual report and balance sheet will provide you with statistics about recent performance but a good understanding of its position will be more beneficial. There is no shortage of information available to help you decide which companies are worth investing in with numerous websites, newspapers and financial publications offering advice, but you must always question the source.
Either stay away from areas you don’t understand or go and educate yourself and don’t rely on what a stockbroker is telling you is happening in an industry. Go out there and do your own research so that you understand.
The Bulletin Boards.
Better known as BB (Bulletin Boards) are places where investors can exchange views and share information on their investments, many a new share that is going places can be found on them. Some have sectors for oil and gas shares, others for bank shares, you name it they will have a forum to talk about it! Rules are rules though and you must not disclose information that is not in the public domain as you may be boardering on insider dealing and that is not agood idea!
The Tipsters and Brokers.
The guy and gals from the fund managers and broker houses right through to the share dealer who have a good record on tipping new shares thet provide investors with key information and help get good ROI (returns on investments) are far and few between. They dont get it right all of the time! Why will a tipster know more that you do? Well may be they don’t but at least some have been doing it a lot longer that you and making a living out of tipping shares, they have to get some of it right otherwise they will have no customers!
The Bloggers and online Blogs.
When looking for tips you sometimes find good blogs talking about investments found on bulletin boards, a lot of these provide information and are useful for finding new share investments as well. You have to be careful as all cannot be trusted, but as you follow and understand the info you begin to know who is telling porkies and who is just providing an honest opinion a lot will be backed by accounts and facts that at time we will not understand, however every bit of info is worth reading again and again to help you make your way forward to investment.
Note: If you’re in a stock it is much easier to monitor it than if you’re not in it. If I sell something it goes off the radar. I’m getting better at it with alarms and watchlists but it is still easier to watch stuff you’re holding.