There are thousands of stocks to pick at any one time, and how does one decide? There’s basically 2 stock trading investing styles to decide what makes money for you, i.e. whether it is a fundamental or technical approach.
The first is fundamental approach and requires one to take time and effort to study macro-economics of the industry and in-depth study of each company in terms of dividend yield, price earnings ratios, strength of competition, growth potential and asset backing. This is essentially the mutual fund approach as it takes a long term view of investing. It looks to dividend payout that exceeds the fixed deposit rates.
The other technical approach is based on charts, having the belief that the price actions on the charts already reflected all fundamentals and also reveals the future price. Many chartists swear by it and several charting methods are available to cater to this category. One famous one is Japanese candlesticks that uses both graphic and colors to show price actions, more on this later. Another chart approach looks for patterns of price versus time that showed formations of pennants, trough, peak, head and shoulders etc enables the technical-inclined person or technician to deduce and make certain decisions based it.
Which one is better? Well each one is like fashion, hot one season and chucked aside the next. While the fundamentalists take time and pains, it will reveal potential great companies missed by using charts. Both have their own heroes and champions but what matters is for you to decide. One may opt for a combination of both, i.e. using the fundamentals to screen out the good blue chips companies and then using the technical charts to study the trends and then use it to make a decision whether to buy, hold or even to sell the stocks.
My first stock trading secret tip is always invest in a blue chip company, one with a good track record of profits. This way you already qualified your target stocks with the fundamental approach.
Another investing tip is before you purchase or sell any stock, check for any latest corporate news about the target company, i.e. any impending news, e.g. stocks announcement, rights or bonus issues, industry announcements.
Whatever approach you take, check and analyse your method of selecting stocks and see how many out of 10 was right, i.e. making a profit. This is part of Japanese kaizen or continuous improvement to stock trading on Methodology. The best way is to verify thru paper trades and prove it makes money before you bet your first dollar.