Are you hearing yourself crying lately, "Huhuhu! I lost my money!" or "I can't sleep!" or "I was so dumb!" or "I can't forgive myself for being foolish!"? If you are, this could be because you lost your job, or failed in a business, or getting rejected by a woman (oops!) or maybe this is just because of the recent stock market correction. Whether the blood bath is finished or not, I can't really tell. But, we shouldn't be much concerned about the downfall anymore because most likely you're already out by this time, either to protect your gains or simply to accept a loss to protect your capital. What we should be focused on, however, is the many opportunities this correction has paved way for us. This is the time to be on the look out for value stocks to buy. I see a lot of opportunities and I'd like you to be on the lookout. Do you know which stocks to look out for?
First Things First: Basics in Selecting Stocks to Buy
First things first! Here are the steps that I do:
- Check the general trend of the market (downtrend, uptrend, sideways)
- When uptrend or sideways, I look out for stocks that are on an uptrend or about to breakout
- Check the target price of the stock (Is the target price reached already or is there room for gain?)
- Check the 16- 32- 65-day Moving Averages (16-MA, 32-MA and 65-MA)
- Check the Volume (shares exchanged during the day: increasing or decreasing)
- Check the MACD readings (Is it positive or negative?)
- Check the RSI (Is it under bought
or overbought ?) - Buy those that are at least (1) uptrend and/or break out, (2) above the 32- and 65-day moving averages, (3) generally increasing and not decreasing volume, (4) positive MACD readings and (6) RSI that is 55% and below.
When buying a stock, I look first at the general market trend. Is it going up, down or sideways? If it's going down, mostly likely I won't go into the market altogether. If it's sideways, I'll try to range trade. But if it's an uptrend, then it's a wonderful day to shop.
Buy Only Uptrends and Breakouts
The next thing I'll do is be on the look out for stocks taht are on an uptrend or about to breakout. The rest that are not either of the two, I forget for that particular time (week or days). For those stocks that are either in an uptrend or a breakout, I then check the 16-day, 32-day and 65-day moving averages. If the stock is above these numbers, then it's a good sign.
Is There Room for Gain Based on Target Price?
The next thing I do is check the target price of the stock. Usually, your online broker will provide you with regular updates on the target prices of certain stocks they monitor. Only select those stocks that have current prices that are below the target price. For example, if the current price of a certain stock is PhP1.00 and the target price is PhP1.50, this means the stock is selling at a discount and the potential gain is a whopping 50% (or 50 cents for every peso invested).
NOTE: I believe CitisecOnline has the best reports there is for online brokers. I may be biased because I haven't tried other online brokers yet, but I read about CitisecOnline's excellent service from a lot of traders who blog or leave a comment on the internet. No negative comments yet.
(Interested in learning about stock market investing and trading in-depth? Or opening an account with CitisecOnline? Contact Ms. Jackie Basbas at jacqueline.basbas@citiseconline.com, landline 026365411 or mobile number 09279616237 and tell her that I advised you to sign up for their free classes or open an account with them.)
Volume: Are There A Lot of Buying Activity?
The next thing I'll do is check the volume, or the amount of shares that is being transferred (sold and bought) during the period. If it is increasing, this is a really good sign because it means people are interested in buying it (since this is an uptrend). So far so good. We have so far selected stocks that are on an uptrend, above the MAs and have an increasing (or at least not decreasing) volume.
Is There Momentum?
The next thing I would do is check on the market momentum by looking at the MACD or the Moving Average Convergence-Divergence. Don't ask me what it means. If you really want to ask, then attend one of the free seminars of CitisecOnline (Contact Ms. Jackie Basbas at jacqueline.basbas@citiseconline.com, landline 026365411 or mobile number 09279616237 and tell her that I advised you to sign up for their free classes). Now back to MACD. What's important is that the MACD is positive and not negative. A positive MACD means that the stock is gaining interest from buyers and this is good for you since the more people that are buying the more likely the stock price will go up, by virtue of the Law of Supply and Demand.
Is the Stock Overbought or Not?
The last one that I'm going to check is the RSI or the Relative Strength Index. Alright Call Ms. Jackie Basbas of CitisecOnline to schedule for the free stock market seminar if you really want to know. Or google it.:) You should look at an RSI of 55% and below. This means that the stock is not overbought. The lower the RSI the more it is under owned. This means that when the stock gains buying interest, there is a lot of shares available to buy and not just because people want to sell there shares to you (which can lead to price stagnation).
So, there you go! Now you know how to select a stock to buy. The question is do you know when to buy it and at what price? Do you know when to sell it for a profit and at what price? Do you know when you need to accept the fact that you lost? This is also what they call a stop-loss price? I'll do a future post to discuss this. Meanwhile, wait for my next post, where I will share to you which stocks I am looking at and that you should be looking at, too. Have you learned from this lesson? Let me know if you have questions and don't forget to post your questions here in the comments section so other readers can benefit from it.
May you achieve true success!
Bryan
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