How to use screening to generate stock trading ideas
Beginner Stock Market Investing, Online Stock Market Investing, Stock Market Investing Advice, Stock Market Investing Strategies
In order to pick stocks which you wish to trade, you first need to have a list of potential candidates from which you can choose the most promising. If you are the kind of investor who conducts his own research and analysis and uses the cheapest broker online in order to keep costs to a minimum, you are probably wasting time on generating ideas for further research and analysis. There are a number of relatively inexpensive stock screening services that will provide you with the preliminary selection leaving you free to concentrate on more value-added activity that will add to your trading profitability. You need as much real time information as possible on the market which means that you need to identify sources from which you can draw economic, industry or sector and company data. While you do not have to turn yourself into an expert analyst, you definitely need to have an understanding what is happening in the markets.
Naturally, you will need to follow the business news on TV and read the financial press in addition to browsing through the major financial websites. Using a variety of sauces for your information will give you a much broader picture of market developments while enhancing the reliability of your analysis. You should be looking for financial news and the factors that will actively influence the movement of stock prices. Apart from the news, here are some other financial factors on which you should keep tabs:
-Interest rate trends and the decisions of the Fed have a profound impact on stock prices and the ability to predict these trends accurately can often make you a lot of money. Similarly, crude oil prices have an influence on the stock markets as a whole and the actual price levels as well as the demand/supply situation need to be watched. In fact you will find that there is often money to be made just by concentrating on macroeconomic factors alone.
-The other macroeconomic factors that can help you to make investment decisions in the stock market are trade data, balance of payments data, employment and housing data. There is a steady stream of information from the US government on these factors on a regular basis. It is true that these are lagging rather than leading indicators but they serve to confirm conclusions that you may have already drawn by analyzing other sources of information.
An important step in this screening process is to quickly eliminate unsuitable candidates so that you can concentrate on the promising ones. Here are some filters that may help:
-Avoid companies that act as middlemen or operate any commodity businesses. They have a limited capability of adding value and the stock price therefore has a limited upside though there is plenty of downside.
-Avoid companies with gross profit margins that are low [say 20 percent or less]. These kind of margins are generally associated with commodity businesses or with startup businesses and leave little cushion for surviving prolonged business downturns.
-Avoid companies that have thin trading volumes on the stock markets. Typically, you will not be able to establish a sizable position and you may find it difficult to liquidate your position quickly. Additionally, these stocks tend to have a wide bid/ask spread which could increase your transaction costs considerably.
Tags: Investing, screening stocks, stock investing, Stock Market Investing, stock screening, stock trading ideas, stocks