Your Questions About How To Pick Stocks To Trade

Ken asks…

from which sites can I learn stock anyalysis and stock picking for trade in indian stock market?

Kindly let me know the sites which offers free coaching and free e books regarding stock analysis technical analysis and fundamental analysis and how to pick stock for trading

John answers:

There are many sites which offers basic information regarding stock
anlysis technical analysis. They are www.moneypore.com, www.Moneycontrol.com, www.myiris.com, www.bseindia.com, www.nseindia.com, from these sites you will get basic information
regarding all listed companies.

But most important thing is to study balance sheet. Actually investing
is an art. Share prices are decided by various factors like demand and
supply, company”s performance, promotors reputation, political decesions, international forces, implimention of projects and lot of
other factors.

Most important is how fast you book profit and reinvest
your available funds at proper time means purchase when the market
is falling and sell when the sensex touch high. You must have timely
acurate information and price trend of a particular stock.

This is possible only after constant monitoring of the price movements
of particular stock. Basic thing is you must have experience in trading
No one can predict the trend of the market. It is your own decision
which help you to construct good portfolio.

Information of the corporation in which it deals and external forces
affecting their profitability is most important. I give here the example
Take stock of Sesa Goa, It is mining company exporting iron ore.
In last 18 months prices of iron ore in international market increased
tremendously so Sesa Goa made hand some profits in last 2 years
and given hand some returns.

It is not just technical analysis and fundamentals but it is more than
that so how long you are in market and the trends you witnessed is
important.

Ruth asks…

How to pick a stock trading website thats best for me?

take it easy, im just 17 years old and im just in business. Im reading books about stocks and investing but right now i wanna know which site best fits a beginner, and what should i be aware of.

John answers:

First, you need to decide whats best for you, are you a technical or fundamental trader? Learn the terms and concepts. Read through the best trading forums for valuable information www.trade2win.com and www.elitetrader.com, write down all the terms you find and type em in in wikipedia, wiki is has been alot of help for me. Then there are sites for analysis like www.finance.yahoo.com www.advfn.com www.barchart.com www.finviz.com, www.freestockcharts.com – this is best for free realtime charts.
Of course my own blog www.trading2riches.com, my 5 year experience using different methods are written there.

Whats important that you have to find what style really suits you.. Long term or short term trading, reading charts or doing fundamental research etc. Most beginners usually go for technical analysis because it looks a lot simpler, for that i recommend to learn chart pattern and get “Encyclopedia Of Chart Patterns 2nd edition” That will help you a lot, but after 5 years of constant reading of chart patterns I noticed its not that easy at it seems. At the moment Im discovering some of the hedge fund trading methods and using those, which are highly profitable :p for example pair trading, It took me a lot of pain and sleepless nights to reach this information.

What to avoid is daytrading when you are a beginner, thats a fast way to throw away your money, better yet dont deposit anything in the first few years, until you have paper traded your method for a while and its profitable, otherwise your losses will be guaranteed.
Another thing what to avoid is any kind of stock picks, tips, alerts or anything that is recommending you to buy or sell certain financial instruments, these are mostly scammers. Avoid penny stock recommendations, unless youre the scanmmer yourself 😉 (read about bump and run). Avoid automated trading robots that earn you guaranteed millions, 99% of them are total BS. Of course there are software that can help you a lot for example pairtradefinder and forex autoclick software.

Internet has endless sources of information, just type in your question and read as many articles you can find.

Nancy asks…

How to Pick Best Penny Stock?

I am newbie in penny stock trading and I have no idea how to pick best penny stocks. I got some basic idea about stock trading, but I am not an expert. So please guide me how to pick penny stocks for trading which will prove to be a good investment.

John answers:

The stocks you want to focus on is consumer staples, consumer discretionary, and healthcare. These are DEFENSIVE stocks that will survive through good and bad times. Most of my positions are in these stocks. Some names include 3M, Procter & Gamble, Kimberly Clark, Exxon Mobil, Walmart, Costco. Everybody’s got to eat and wipe their butts regardless of the state of economy. Many of these companies survived through the Great Depression.

That’s the benefits. You can sleep at night knowing your money is doing well. There are NO guarantees that you won’t lose money. It’s just that these stocks are the best. They pay good dividends too.

Laura asks…

how do i pick what stock options to trade and when ?

John answers:

When choosing stock options to trade it is important to have a framework upon which to base your decisions. Keep in mind that there are myriad trading philosophies and as such there is no ‘one true’ trading methodology.

No one can really answer your question without you determining your framework for making a decision. Given that, I have described some of the basic frameworks upon which your question can be answered.

Here we go:

FUNDAMENTAL ANALYSIS APPROACH
You may be approaching option’s trading from a “fundamental analysis” stand point; that is, you may be looking at a trade based upon the performance of the underlying company. If that is the case then you are treating option’s as a leveraged form of buying stocks and then you would want to purchase longer term options, even possibly LEAPS (Long-Term Equity AnticiPation Securities) and merely do a “buy and hold” strategy where you buy them now and hold them till they have increased in value, selling them much like you would the actual stock.

A trader would do an analysis of the asset and determine if the stock is a good solid company, and maybe even if it is currently “undervalued” or “overvalued” based upon it’s price per share (PPS) and it’s market capitalization. A trader might seek to buy option’s on the asset when the asset is undervalued, and sell it later for a profit, possibly when it is “overvalued”. Fundamental analysis may tell you more of “what” a good long term investment might be and may not be so hot on when you should get in or out.

TECHNICAL ANALYSIS APPROACH
There are other decision processes a trader may use to decide which options to enter and when to enter them. The “technical analysis” approach, however, has more to do with the movement of the underlying asset (stock) then the valuation and movement of the actual option’s price. Some traders do this, but again then these traders are using options as a leveraged form of buying (or selling) the stock itself.

These traders use one or more of hundreds of different ‘technical indicators’ to tell them when and if to enter. These indicators are based on the stock’s charts which graphically portray the asset’s price movement overtime. Some of these indicators may include moving averages, stochastics, MACD, RSI, Bollinger bands, Fibonacci retracement patterns, candlestick patterns, blah, blah, blah, etc, etc, but they all have to do with understanding and scrutinizing the stock’s chart.

These indicators search for different things but all of them bring with them entry as well as exit points. Technical analysis doesn’t tell you “what” stock or option to buy, but it does tell you (if you can get the knack of them) when to get in and out.

VOLATILITY TRADING APPROACH
In the options trading world, apart and unique from stocks, there are other traders who focus more on the price movement of the actual option itself instead of the stock’s price movement. These traders focus on an option’s “implied volatility” (unique to options!!) and use elaborate calculations from the Black-Scholes Model, or other option pricing models (Yeates, Cox/Ross/Rubinstein) to determine probabilities of success, over or undervalued-ness of the options. Such trading is perhaps more mathematical and is based upon an assumption that, more or less, the market’s are random and as such can only be truly understood via probabilities, standard deviations, and bell curves.

Trades are entered, depending on the strategies, when the option’s price is “overvalued” (for selling short positions) and exited when the price of the option drops in value due to a decrease in the volatility of the actual option; or when the option’s price is “undervalued” (for buying long positions) and exited when the implied volatility increased thus increasing the price of the option.

Of course the numbers have to work out. The probability for a successful trade has to be adequate for it’s amount of profitability. Probability and profitability are essential, and every volatility trader may have different risk tolerances, and methodologies for choosing their trades.

ECCLECTIC TRADING APPROACHES
In the real world of trading I suppose there are few die-hards, and that many traders take a little bit of one or the other (or all of them), and make their decisions. Many traders use options to hedge stocks, and so they are fundamentally stock investors who use the protective ability of options.

MY BASIC STRATEGY
I, myself, am currently using both volatility and directional trading. Directional trading is, I suppose, basically a technical analysis approach as it is interested in the near and longer term trends of the market, whereas pure volatility trading is “directionless” and only cares about the rise and fall of implied volatility.

Primarily, I care about the rise and fall of implied volatility. I find that I get higher premiums from “over valued” options when I sell credit spreads (I like spreads and am more or less a spread trader) than when I sell undervalued spreads; however, I also look at the direction of the stock via the 21 day moving average to help me determine whether I should enter into a “Bullish” or “bearish” credit spread. Then, if the volatility drops and the value of my credit spread diminishes (this is desired as it is a short position) I can exit the spread early for a profit.

But, secondly, I have a back up plan in the choice of direction, bearish or bullish, if the volatility doesn’t drop like I expect. I may still be successful in preserving my premium (the money I get from the start for selling the spread… I make my money up front and not at the back end. Get it?) if I have chosen the right direction for the underlying asset.

YOUR REAL ANSWER
I know I haven’t directly answered your question but I hope to have shed some light on a decision… Nay a journey… That you have to take for you to answer your own question. Regarding answers: there are plenty of them and many may be right, but no one can decide which the right answer is for you.

I hope this helps you.

Sandy asks…

is there any intraday stock trading software or website?

I am a intraday trader, can any one help me
How can I know which stock is going up or going down how to pick stocks during live market hours to trade. Please give me any free website or software where auto signal is provided instantly to buy / sell signal on NSE/BSE Stock. Please help me i will be very much oblige for that.

John answers:

You need an intraday realtime scanner or screener to identify the kind of “action” or pattern you’re looking to trade. Many brokers include some scanners with their trading platform, such as: most active stocks, highest % gainers/losers etc.

In the US there are also dedicated 3rd party tools, they aren’t cheap, but they can be very powerful, especially if you know what type of stock/market action you’re looking for.

There is no free realtime scanner out there. Realtime data costs money.

Some 3rd party tools for the US market to give you an idea on what it should look like:
http://www.trade-ideas.com/
http://www.prophet.net/ (you get 2 free scanner, but not realtime)
http://www.ozscanner.com/

Good luck.

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2 Responses to Your Questions About How To Pick Stocks To Trade

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