Once you determine which business cycle the economy is currently in, you can start researching a trade. It is best to have a system in place that will be used before EACH trade. Here is a simple 5 step formula to researching a stock trade before investing to help get you started.
5 Steps to Investing Online:
- Find a stock
This is the most obvious and most difficult step in stock trading. With thousands of stocks to trade, a good rule of thumb to consider is the time of the year. For example, as I write this, it is the beginning of summer. It would make sense to consider stocks that traditionally make runs or slide if you are bearish during this time of year. But fundamentals make a big difference as the investment must be sound first and foremost.
- Fundamental Analysis
Many 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 three quarters, caution could be in order. This is where I differ and look for long-term plays in what many would consider a value play.
- Technical Analysis
This 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.
Please keep it simple when first starting. 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.
- Follow your picks
Once 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 at a minimum monthly checkup on the stock.
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.
- The big picture
As the saying goes, all ships rise and fall with the tide. They know 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, you are more likely than not 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.
As a Registered Financial Consultant that is also a Certified Financial Fiduciary, I do not practice or advocate for trading. Rather I take a long-term approach. But as with all things, some long-term trades can turn into short-term trade depending on what is happening. This is why it is important to make sure you do your homework when selecting stocks to purchase.
