There are plenty of sources from which to obtain the names of companies that can be screened to see whether they fit the desired profile for buying stocks. In my case, that profile requires them to exhibit a stock chart pattern that meets any of a number of recognized potential set-ups that indicate a possible break out in the near future – so that I can initiate a trade if a confirmed signal occurs.
Some online sources I follow, in no particular order of priority — its the stock that counts: Motley Fool, The Street, Seeking Alpha, Yahoo, Marketwatch, among others.
Print publications, the IBD
The daily and weekend financial newspapers, mainly the Investor’s Business Daily (IBD) the best by far. Although I’m sure they are OK, I don’t bother with the others such as the Wall Street Journal or the many financial magazines such as Barons or Forbes – I find that there is already too much for me to read anyway.
A general comment for the newcomer who is now wishing to learn the basics of stock market trading, I do highly recommend buying IBD for a while, just a couple of bucks each day, it really is a good source of general information and in addition to market news provides details on all the stocks according to the SLIM trading strategy. The SLIM strategy was invented by William O’Neill, the founder of the IBD and a well-known writer on the stock market and trading, whose books I can also recommend highly and should be considered as required reading for the beginner.
Advisory services, “Tip” sources through paid subscriptions
I subscribe to one myself, it save me a lot of time. I have tried several services in the past with varying success but many years ago I found the one that I liked, was successful with, and that suits my own trading philosophy so I have used that service ever since.
Therefore, based on my own experience, I do recommend a paid subscription to one of the less expensive stock market advisory services. Not as the sole source of stock information and maybe just during the early days when still learning the stock market basics when it is good to have access to information from experienced traders – if they are successful, and their record can be confirmed.
Several advisory services advertise in IBD and some offer a trial subscription for a month or so at a reduced price. I know that Vector Vest does at $9.95 for 5 weeks and $59 monthly thereafter. I have myself subscribed to Vector Vest in the past many years ago and I have also paid to attend several of their multi-day trading gatherings. They offer more than you can possibly use as a beginner but it is all very good value for the price – and that is my unpaid-for private opinion based on my fairly long time ago experiences of them. There are also ads for advisory services placed on this website by Google and most other similar websites have ads of this type too.
There are a lot of advisory sources, some free, some very expensive. Use caution because it is possible that some services fail to deliver.
For any of the advisory services, I suggest that you check out their past records and paper trade their recommendations for a while if you do take a trial subscription. It’s good practice to paper trade anyway. From some services you may get many more recommendations than you can use, so they will need to be reduced in number by using a suitable screening and filtering process in the same manner as I do, mentioned below.
I do sometimes watch CNBC intermittently throughout the day, for short periods and although I do not often take notes I have learned of one or two prospects that, after my usual screening process mentioned below, were found to be worthy trading candidates. The last one I recall was AGCO which became the vehicle for the Stock Market Basics paper-trading Portfolio #1 and produced profitable results within a couple of months, as can be seen at AGO Paper Trade.
The screening process
Stock chart patterns
Is the stock’s trading pattern showing break-out possibilities?
A lot of company stock symbols can be gathered by checking the above sources.
Using StockCharts.com, Finance.yahoo.com or possibly the trading platform of my stockbroker, I quickly pull up their stock chart one after another, looking to see if I understand the recent trading pattern and can see whether there is a potential breakout in the direction of its current trend and the market’s trend, up or down. If so, it is marked for addition to the portfolio watch List
Volume should be one million daily, or at least several hundred thousand daily – this is to ensure liquidity to make it easier to move in or out of a position when necessary. Also, the more the volume, the more likely it will be that the spread between the bid and ask is reasonably narrow.
Price around $10 to $20 is prteferred. The higher priced stocks are possibly safer but require too much capital for the small trader. I think I recall that the above mentioned William J. O’Neill favors buying stocks in this price range. But stocks in the $5 to $10 range can be considered if they exhibit the right attributes. For instance, for the Stock Market Basics No. 3 paper trading portfolio, we are considering QPSA as a potential buy next week, a stock that closed Friday at $7.72.
Whether they have options attached. I like optionable stocks to trade, for my views on options, see The Stock or the Option.
Check earnings dates, when earnings are announced their affects on the stock’s price is often quite unpredictable, often contrary to the news announced and where an entry into a stock position too near to earnings date can be dangerous. Not a wise move when your strategy is meant to aim for minimizing trading risks at all times.
Finally, The Watch List
Add all the selected candidates to a watch list until there are about 10 to 20 possible trading opportunities. Upload the watch list to an Active Portfolio file on Finance.Yahoo, listing current prices and then continue to monitor the portfolio for which Yahoo will update the prices at intervals each day and from which their stock chart can be easily accessed and checked for re-assessment purpose.
When ready to trade
When funds are available, selection from the watch list should provide possible trading candidates that have already been screened and watched for a while. There should be more candidates than are needed, allowing a further process of comparing one with another in order to make the best choice according to your interpretation at that time. There are no guarantees of course.
Setting our trading objectives
In one of the next posts we should discuss our overall expectations for trading, the type of profit returns we seek or are possible after allowing for losses, the time frames for holding a position, and so on. We need to set some objectives.