How to Pick Winning Stocks
1. Assessing the risk: - The longer you are in the trade, (you own the stock) the more the chance increases of a reversal in the share price. If you are in for Long Term than this is not so an important factor.
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2. Time factors. Are the stocks for short, long term or medium term? This is crucial because it will save you time, effort and worry later on.
3. How many shares do you need to make it a viable financial proposition? Again in medium to long term again it is not so important.
4. The minimum amount you can buy on the ASX is $500.00 now an important factor to consider is that on average the brokerage for buying and selling will amount to $50.00. Now that is 10% profit that you have to make just to break even.
Therefore a 20% profit will gain you $100.00 less brokerage of $50.00 leaves you the sum of $50.00 profit.
We haven't taken into account capital gains yet. That you worry about when you are making a profit and not before.
Not much you say, and I agree with you. But if funds are limited as mine were to start with, you need 10 successful trades to make $500.00.
And do not think that is easy. I can tell you now that I averaged only around the 60% success rate to begin with in the first six months.
My knowledge was very meager, and only basic information could be found without having to pay for it. (A website like this one where detailed information is free were very hard to find.) And aren't you 'Lucky' that you found this website?
5. The next point to consider is movement. (Volatility) In other words how many shares are being traded on a daily/weekly average?
You don't want to be buying a share that is hard to sell, particularly if the share price drops. Which on the odd occasion they are prone to do at times, without any prior warning.
6. If the share price is for a 'Blue Chip' say around $5.00 to $10 .00 then at $500.00 you will only get around 100 to 50 shares.
Of course the lower price the share costs the higher amount of shares you get for your dollar.
Now a funny thing happens here as the price of the shares get cheaper the 'Risks Increase' This due to a larger increase in Volatility and the Volume of shares sold.
Blue chips maximum movement is usually around the 10% i.e. a $20.00 share will move around $2.00 (this also depends on market sentiment.)
While a Green chip stock's price movement is usually in the 20% to 50 % range.
When you come to the lower priced stocks this includes your 'speculative' stocks. The higher volume is around the 50% to 100%
These are not hard and fast rules as there are other variables to consider i.e. is it a 'Bull or 'Bear' market? (Is it a buyer or a sellers market?)
Large profits are made at this end of the market, but bear in mind the risks are equally great and can result in big losses for the unwary.
7. A most important tool used is a 'Stop Loss.' This is used to minimize your losses if a trade goes bad. (Downwards)
8. Discipline. This is done by doing 'YOUR' research (and not relying on so called 'Hot Tips') this is done by employing either basic 'Fundamental Analysis' or 'Technical Analysis.'
The first is done by checking out the company itself.
Whilst the second is using past information in the form of using 'Charts' to help you towards making an educated decision. Prior to your share purchase.
I personally use a mixture of both. But what works for me might not work for you. What suits you best will only be found out by doing it and trial and error.
I am continually 'honing' my skills and have learnt by making mistakes and then not repeating those mistakes again.
And yes! I still stuff up but not so often lately. But I don't think I know it all either, for I don't, so I am constantly learning on a Daily basis.
I hope this post has been of some assistance to you and improves your skills in picking 'Winning Shares.'
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