How To Pick Winning Stocks

When a stock is cheap, it is cheap for a reason. You are not getting a discount. If the stock was a strong, high quality stock that is in demand, then don't you think everybody else would buy it and therefore increase its price?

There are only a few unique situations in which a cheap stock is actually a discount, and one of those situations is after a bear market when everything has taken a big hit (but even still, just because the stock performed well in previous years does not mean it will do well again in the future). The other situation is when a well performing stock makes a normal correction during base building stages.

This does NOT mean to buy only Microsoft, AT&T, Best Buy, etc. In fact, I personally wouldn't purchase any of those stocks. Those stocks have already seen their best days, they may still be leaders in the eyes of consumers, but that doesn't mean they are the leaders of the stock market.

Everybody already knows who AT&T is and what they do; its not like in a month everybody is going to start flocking to AT&T stock and send their stock soaring through the roof like AOL did in the 90's. AT&T is old.

This of course depends upon your investment style though; if you are a slow income investor then you might like AT&T's dividend to slowly build wealth over a LONG period of time. However, if you are looking to increase your portfolio by 25-50% over the next year then stay away from the big and old companies like AT&T.

So then what do I mean by "quality stocks?" There are many factors to consider, both fundamental and technical. You want a stock with increasing sales, increasing earnings per share, a good relative price strength (which measures a stocks performance versus the rest of the market), leaders in their group and sector, and many others.

Stock bases are areas of price consolidation which create pivot points, or launch pads. If you want to master timing the market, then you MUST master base finding. Not just base finding, but proper base finding.

There are many types of bases, and each one has its own definition, but in general a base is this: after a stock makes a strong move upwards, it will naturally go through a small correction (come down in price) as people sell out and take their profits. This natural correction in the stock brings its price down a little bit, but the stock will find support at a certain level. In a strong base, the stock is unlikely to drop below this support level. If the stock is unlikely to drop below this support level, then it is preparing itself to continue its upward trend. This is the golden moment for investors - learn to find it and profit from it.

As you learn more about bases you will be able to spot the strong bases vs. the faulty bases and learn when and where to put your money. You can find the perfect stock, but if you buy it at the wrong time then you can lose money. Timing is KEY.

Simply put, if you buy too long after a stock breaks out, then when the stock makes its normal correction you might lose money and get scared out of the stock. This will not only cause you a loss, but it will hit you again as you are on the sidelines as the stock decides to resume its overall trend and climb back up. Then once you see the stock climb back up, you might be tempted to jump back in, but if you are too late then the same thing might happen again.

This is why it is so important to catch a stock as it first launches off of its base. Not only will you make more money in the stock, but you will also have a good enough profit to be sure that you will not lose money during the next normal correction and be scared out of the stock. You will be in a better position to profit even more in the next rally.

Industry groups are more specific groups within an overall sector. So if a sector might be something such as "media" then an industry group would be something even more specific within the "media" sector such as "television" or "radio." Picking a stock within the top industry groups will automatically put you ahead of the game. For example, if there are a 100 industry groups and you choose stocks only out of the top 10 groups, then you can basically say you are picking stocks out of the top 10% of all stocks. Of course one good stock in a bad industry may outperform a bad stock in a good industry, but the point remains the same; picking out of the top industry groups will help you increase your odds of finding a good stock.

This gets even better in the next tip.

If you are only buying stocks within the top industry groups then you are already reaching into the bag with the most possible prizes. Now, boost your odds even more by only buying the leading stocks within the leading industry groups. For example, if you pick any decent stock out of the very best performing industry group then you are at least possibly holding a good quality stock. However, if you pick the very best stock out of the very best group then you have given yourself the highest possible odds for making money in the stock market.

If you aren't already excited to go start screening through stocks, then this will be the icing on your cake. Sometimes the best performing stock within the best performing industry groups will be a "leading loner." This means that other stocks in the group might just be "riding along with the leader." To be sure you are REALLY picking good stocks, buy the best performing stocks within the best performing industry groups, but make sure there are also other stocks within its group that are also performing well. Investors might hesitate to buy a strong performer if the rest of its group isn't doing very well. With that being said, that best performing stock should be even stronger with the support from other strong stocks within its group.

This means that a stock is being heavily bought by Wall Street institutions. Those institutions are the ones with billions of dollars and can really make a stock move. Due to their enormous size, it can take an institution weeks or even months worth of buying a stock before they have finished buying the amount they wish to buy. Since you are a smaller individual investor, you can jump right in and watch your stock increase in price as these institutions purchase millions of dollars worth of stock over the next few weeks or months. Best of all, once the price run is coming to an end you can jump right out with your profits. You just rode the wave.

This is simple. Don't buy a long position in the middle of a bear market, and don't sell short in the middle of a bull market. Go with the overall trend. If the overall market is going up, then the overall outlook is positive - don't fight against it. If the overall market is going down, then the overall outlook is negative - don't fight it. The best way to go in the stock market is with the wind to your back!

This should really be #1, but as you will see by the end of this paragraph, we put it last for a very good reason. Ignorance is a sure way to lose money in the stock market. You might make a good move by chance every now and then, but you will never consistently make money in the stock market if you don't understand how it works. Luckily for us, the stock market has been around for well over 100 years so the generations before us have been able to unlock the mysteries and share their secrets with us.

The stock market is an amazing wealth building tool, but sadly, the average human being seems to believe that they don't need to read any books to make money in the market. They are all just out to get rich quick and just lose their money. The funny thing is, when they lose money, someone else has to make money. Do you know who the people are that make the money that is lost by others? You. People like you that actually take the time to do their research and learn all that they possibly can.

If you just read through all of these ways to increase your odds, and you're still here for #10 then you passed the test; you are obviously one of the individuals gifted with common sense and a realistic outlook on things. All of the other people stopped half way through and went and tried to get rich quick, but you stayed and obviously have a huge advantage over them: knowledge.

Good job!

Now expand your knowledge even more by exploring the strategies developed by the greatest stock traders of all time. They have taken all of their knowledge acquired over a lifetime of making money in the stock market and passed that knowledge on to you and I through their books. These books are by far the best investment you will ever make in your life as just a few weeks or months of reading will supply you with the secrets of the stock market that will last you a lifetime.