Follow these steps and you can create a powerful stock watch list in the matter of minutes to an hour each night. I work longer than that but it can be done in less time if need be. This watch list will generate opportunities for trend buying, swing trading and even shorter-term trading. I guess the occasional buy and hold investor could even benefit from this very simple procedure if they purchase at the right time.
I encourage all investors in all time frames to evaluate stocks for investment using both fundamental and technical analysis. A day trader and even a swing trader can get away with avoiding fundamental analysis but I highly recommend both methods of analysis for intermediate and longer term trend traders. Both tools are equally important in making serious decisions with your hard earned CASH!
If you wish to invest in stocks, treat it like a business, NOT A HOBBY. You need rules and you need to follow these rules or money WILL be LOST. Once proven rules have been established, they cannot be broke or you will lose money. Everyone loses money in investing but we must learn to cut losses quick and allow gains to develop. Small losses are acceptable because they teach us lessons that allow us to win big. Think of losses as part of doing business and focus on the long term success of the system and not each individual trade. As long as you have a positive expectancy, the winners and losers will equal out over time to make you consistently profitable.
Now to the watch list method:
- Determine if overall market is in a specific trend (up, down or sideways).
- Use a computerized screener to find stocks with superior fundamentals
- Evaluate sister stocks or stocks within the same industry group (strength travels in groups so the probability of success rises when buying into a strong industry).
- Study the technical aspects of the charts for each possible opportunity
Simple Fundamental Screener Criteria:
The criteria listed in this section can be used together or arranged in a variety of ways to generate multiple lists containing all possible opportunities. Get a feel for specific screens and determine which are the most successful during certain market conditions.
- Increasing Earnings (current, past: quarterly, yearly and future estimates)
- Increasing Sales (current, past: quarterly, yearly and future estimates)
- Stocks making New Highs
- Stocks within 15% of New Highs
- Stocks within 10% of the 200-day moving average
- Increasing Return on Equity (ROE)
- Price/Earnings Growth (PEG) – Less than 1 is preferable
- Accumulation/Distribution ratio
- Up/Down Volume over past several months
- Increasing Institutional Sponsorship
Simple Technical Analysis Scans (with your own eyes):
- Study the one year weekly chart (preferably candlesticks)
- Study the six month daily chart (preferably candlesticks)
- Look for increasing accumulation days (stock up on above average volume)
- Evaluate the Point & Figure chart for support and resistance levels
- Look for basic chart patterns such as flat bases, cup bases, saucer bases, triangle breakouts, obvious trends along a moving average, etc…
That is all one needs to develop a quality list of opportunities night in and night out. Trading opportunities will appear once you see a particular stock make multiple screens on a consistent basis. This is the basic foundation I use to pinpoint my opportunities in the market and the general guidelines I used while running MSW.
I use the custom screen wizard from Daily Graphs (Investor’s Business Daily sister company) for my fundamental analysis because I love CANSLIM type stocks but many tools exist on the web. Some are free and some cost a pretty penny to use. My screener costs $45 per month which is nothing to me but maybe too much for others.
Please leave a comment on what screener you use and why. Leave a link to the screener that you use to give the site or business credit. I am very curious to hear what other trader use. As great as the wizard is for me, I am always looking to find something better.