Digging up the top stocks on Wall Street to take a position in is a complex task understandably. There is a good amount of important information on the markets today which can overload you quickly, and even if you do get it all worked out, there are still other factors very difficult to foretell that can take an usually great trade and transform it into a loser, and this can transpire nearly overnight to even the strongest stocks.
So allow me to ask you this question, what exactly is your main objective for having dollars in the stock market to start with? Do you find it to be to own stock in a very powerful company for which you genuinely like and also believe in, and that you’ve done your analysis on which all points in the direction of good quality profit; or is it to make money on Wall Street, and yes there is a big difference?
What am I saying? What I am saying is this, if you do not locate the money first prior to investing, it more than likely will take you longer to see the profits that you are looking for.
For example picture this; you happen to be getting gas for your car however, the pump is merely pumping 1 gallon every 10 minutes. Now that could really hold you up at the pump, right? Now, what if the pump was moving 20 gallons ever minute? We would like to put money into stocks that are pumping the 20 gallons a minute and that’s what we’re searching for.
Subsequently, before even beginning to search for stocks to purchase we must first ascertain what direction money is flowing in the Financial Markets? Would it be coming into the equity markets or would it be moving into the fixed income markets? If equities then are the market’s as a whole overbought or oversold and are there any substantial divergences amongst the direction of the big Indices and say Momentum or the MACD histogram. If none and price motion is being confirmed then we want to know how the Sectors as a whole are performing are they getting stronger or are they getting weaker? If stronger, then of which Sectors and Industry groups is cash coming into and displaying sturdy relative strength, finally which stocks would be the best to invest in? I make use of Point-n-Figure methodology to keep track of all of these things.
This really needs to be to be understood prior to searching for stocks. Simply because a company is strong doesn’t indicate that the Sector or Industry group in general is or will be supported by the Professionals and Institutions. And if not the stock quite possibly could do nothing but waste time which lowers yearly returns, or even worse undergo a sell off which could then force you right into a long-term position and transform operating investment capital into useless investment capital. As I believe it was Warren Buffett which once said, “There exists a time to work for a company, and there exists a time to own stock in that company,” and it makes a world of difference in regards to investing. It’s about locating the cash first!
This leads us towards the next point that we need to take a slightly closer look at before searching for stocks. When it comes to your success in the financial markets, before you even begin, prior to anything else there is one Golden Rule that you need to learn, that you need to follow and that you must always be living as you take part in the great Wall Street game! “Never, become emotionally involved with your trades or investments, Ever! Always, invest having a Plan that includes entry points, protective stop points or includes protective puts, time limits for inactivity, and profit sell points!” Do not even enter the markets until you have all this information in hand and well understood, because if you do you truly will just be gambling!
Keep in mind price swings to a certain extent can be measured, look into Elliot Wave Principle, so we want to identify the trend using channels and from that determine the amount a trade is probably worth max based on how long we are planning to hold, and next sell somewhere on the way up. The closer to the max profit the greater the risk in a trade so do not get to greedy! If you do see a break in a channel line it is an indication that quite possibly there is a change of trend coming and to check protection.
There’s still one more issue that needs to be hammered out before searching out stocks and keep this in mind also. If you allow yourself to become emotionally apart of your investment decisions and they go sour, your subconscious mind will most likely first seek to protect its reasoning about the buy in the first place to preserve its self-esteem, self-confidence, and its overall integrity. As it goes into protection mode, it creates a fight-or-flight mentality to try to deal with the pain of a trade gone wrong, wisely or not when there is no protection plan already in place costly decisions may occur!
This defensive routine once going slows the mind of proper reasoning, which is basically the minds ability to reorganize thinking quickly to deal with the rapidly changing environment. By the time this cloud is gone, many Investors both experienced and inexperienced have found themselves stuck in a long position just riding it out.
Ok now that we’ve got that all taken care of let’s go forward.
Alright, so you have determined the overall trend within the markets and have located the sectors and industry groups that have the strongest relative strength that you want to invest in. Now it’s time to find the stocks that are going to be excellent to buy.
Below are 20 points that you should be carefully paying attention to as you search for the best stocks to invest in.
1. Low earning yet good sales and net income indicates that a company is having problems sustaining growth on a per share basis.
2. Good sales and earnings growth over time is most often associated with companies that grow the most over time.
3. Earnings growth of greater than 25% over 3 or more quarters is definitely a hint that the corporation is leading the charge and is strong.
4. Top stocks just before their impressive growth cycles typically have had earnings growth in the most recent available quarter of around 70%
5. For small and mid-cap stocks look for earnings estimates of 38% – 79% for large caps 23-41%.
6. Are the company’s products or services in demand? Sales numbers reveal this information. If they are consistently growing over time then yes, if sales are shrinking then demand is falling off.
7. What supplies does the company need to make their products are there any notable changes in the supply chain coming?
8. Companies that are undervalued that have shown outstanding earnings growth over the past 6 months to a year are potential big winners.
9. ROE illustrates how proficiently a business is managing shareholder dollars. It illustrates a corporation’s financial effectiveness. Raised ROE means that a organization possesses a superior track record for generating cash flow for the shareholders. Great winners average an ROE of 17% or more.
10. Price run-ups on unprofitable companies will almost always fail. Check headlines to find out what’s going on.
11. Some industries are more profit sensitive than others for example, retail, which can result in slower growth.
12. Relative Strength divides the leaders from the lagers.
13. Leading groups tend to posses stocks with positive relative strength. Use groups that are increasing the most to find stocks in.
14. A Tight base of consolidation is a telltale for a profitable stock and sets the stage for profitable moves.
15. Generally, if a stock strikes its 50-day moving average and then heads back up it is a sign that the Professionals are still supporting it. Professionals will often use the lower prices of the 50-day moving average to increase their holdings in strong companies.
16. When the stock drops below its 50-day moving average on significant volume this can be a particularly poor sign of deficiencies in any additional Professional support and may very well not recover rapidly.
17. Confirm breakouts using the relative strength. When it is going up in the process it’s an indication of actual break out.
18. When relative strength hits a new high ahead of price it indicates the potential of sizable growth in the future and is highly bullish
19. Too many large stock splits, 2-1 3-2 in a signal year is a bad sign and should be considered an opportunity to sell or at least to tighten up protection.
20. Don’t buy overvalued stocks unless you have a great reason. Go to valuepro.net to get a quick look at valuations.
I use Yahoo finance regularly to do a lot of my research. There are others great sites too that you will want to add to your systems. This Article provides you with a bird’s eye view of how to succeed in stocks. Now check your systems.
I hope this Article shed at least some light on the subject of how to find the best stocks to take a position in today, and will assist you in pinpointing the greenest grass in the Financial Markets in the future.
Thanks for reading!
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