You don’t need to be a financial expert to make money from market. This is what I have been telling everybody but one question that I get quite often in my mail as well as in Do It Yourself Technical Analysis Members Forum area is – How do I pick the right stocks from thousands of stocks that are being traded in the market.
You don’t need to be a financial expert to make money from market. This is what I have been telling everybody but one question that I get quite often in my mail as well as in Do It Yourself Technical Analysis Members Forum area is – How do I pick the right stocks from thousands of stocks that are being traded in the market.
Let me answer this question with a very simple approach that I prefer.
To start with, you need to be a disciplined in the equity market. A disciplined trader or investor is the one who invests systematically at the right time in the right stock and at the right price with the right approach. If you are a new comer in the field of investments, you have to be extremely eager to learn it first. It requires your time and efforts to know about the basic trading tips and techniques.
Many a times I get a reply to the above question that I don’t have the time to learn and so can you handle things for me. My answer is NO because if you can educate yourself for 16 years for a Job, why can’t you educate yourself for 16 hours to make money from market. If you are ready to learn, you can pick up the preferred stocks by yourself with little efforts and understanding of the market? Of course it is true and here is a look on how to do it.
Step 1: Know the Basic
Understand the basic financial terms like investments, returns on the investment, equity, mutual funds, bond markets, CAGR, dividend etc. If you are thorough with this, you become an eligible trader in the market. Refer my blog for Stock Market Terms & Mutual Fund Terms.
Step 2: Search The Sector
Make a simple Google search to know the top industry sectors that are doing well in the present scenario. You can go through the expert calls made in several financial websites such as Bloomberg, moneycontrol etc. Assume, experts argue IT and FMCG sectors are going to witness an upward trend (for whatever reason), then narrow down the industry verticals in which you would like to do the investment. Apply your common sense (the one that I use is if a stock is doing good for last 1 year or rather 52 weeks, there is no reason for it to not perform for few more weeks) in analyzing the industry vertical performance so that you can eliminate the worst from your purview.
Step 3: The Patterns You Prefer
Assume you have narrowed down IT and FMCG sectors to invest in. Now do a similar search to find out the best companies to invest in each of those sectors. In our case it is IT and FMCG. Google and other top financial websites can help you to pick the best companies in the sectors.
Do a self-analysis and find out the percentage of returns given by these companies in the past 3,6,9 and 12 months. A simple view of the historical prices will give an idea about the performance of the company.
Now with the list of top companies in your armory, apply the technical patterns you prefer Investing. For me it is Break Out and Support and Resistance Pattern.
If you have zeroed in the top companies, sit back and closely watch their performances for a period of two or three months. Make sure to cover a wide range of companies, as you can understand more when you look at their reports. This will give you an idea on how to proceed from here.
Final Step: Start Investing
Start with a minimal investment. Make sure to have a stop loss value in all your trade and investment to trim your loses. It is the thumb rule to be followed for every trader and investor. Create your list of stocks and try to enhance your knowledge on your list of stocks. Add more stock to your list as you move along.
Make sure you create your own patterns or follow someone’s patterns that work in the market to find the best stocks.
Hello Shabbir
Hope you are doing good.
Can you please tell what is ReflexPoint in stock market.
I was reading ElloitWave analysis and fibanocci extensions then i came across this word.
Thanks in Advance
Not sure about that Kiran.
Hello Shabbir,
What does recent sudden market fell down mean to learners like us,Is it because of of fall in rupee value?Does this show that we have to know fundamentals of company before investing apart from checking chart patterns that is technicals?
For Ex:-
http://www.moneycontrol.com/news/stocks-views/gitanjali-gems-may-fall-to-rs-300-320near-term-tulsian_904531.html?utm_source=MC_Mail_Stock_watch
The above link gives us some info on y all the Stocks based on Jewellery are declined in price.Is there a way for us to know these kind of information,some links kind of thing.
Thanks in Advance
Kiran, we in the DIYTechnicalAnalysis forums predicted the move very well in advance and many of my members have grabbed almost 100+ Nifty points just shorting Nifty. The stock ideas given on TV and MC are at times baseless and so I don’t prefer reading them.
Hello Shabbir,
Thanks a lot for all u r replies which is really helping me a lot.
I have one more question 🙂
I was going thru a technical indicator where the calculaion is done using “the average of price extremes over a given period of time and it says this gives a better measure of equilibrium than merely using an average of the closing price”.
Here i didnt get what does that better measure of equiblrium mean?
Does that mean the voltality in the prices over the time period is further smoothened when compared to moving averages of closing prices ?
And this gives a bettter SUPPORT/RESISTANCE price over the given/choosen time period.
Kiran, I also did not understand because it is tough for me to understand based on just one line and it should be based on some context and so if you can share where you have seen that it may help a bit more.
Hello Shabbir,
I apologize for delay in reply,was stuck with project work in meeting dead line.
And regarding my question,I was going through Ichimoku Technical Indicator,where they take averaga of highest of high and lowest of low over a given period.Its just like moving avrages but the only difference is moving averages takes closing price of each period. Here they are speaking about Equilibrium which i understood as market/stock is in a kind of No Trend position that is ranging.This is where i was confused.
Have a nice day
Thanks&Regards
Kiran
Not sure if I can help as I am not aware of their calculation or application of the same.
Hello Shabbir
What is BackTesting Strategy?
When googled ,i got to know that it helps us in identifying a similar trend like how the stock has performed when the same pattern formed in past and this helps us in identifing the trend of stock in current market situation i mean whether we can buy or not now.
But how can we do that.Does it really help ?
Are there any tools for NSE/BSE to do the BackTesting?
In Simple terms Backtesting is patterns repeats itself. So if there was a good news and stock moved in some pattern, then again a good news will make the stock move in similar pattern.
No there is no tool as far as I know for backtesting.
Hello Shabbir
Iam going thru chart patterns and candle stick patterns for technical analysis.
Would like to know what would be better time frames for
IntraDayTrading(1 day)
Swing/SHort trading(1 to 3 months)
and
Long term trading(greater than 3 months)
Kiran, for all the 3 options I prefer Charts and just have to adjust the chart parameters like for Intraday I prefer 2 mins and 5 mins charts but for longer terms daily charts and for investment even weekly or at times monthly charts.
Hello Shabbir
I was looking into moving averages
1) They say MA are lagging indicators.SO it means that a reflection of change in price of a security is shown after some time when the change in price of security already took place right.
Say for example if price of security falls today, then with moving average the average line shows the change after some time depending on what average value we took right.
2) Single Moving Average only identifies the trend but this we can also identify by seeing the chart without applying any average by going for line chart.
Only when we mix 2 or 3 MA we can identify cross overs and support and resistance right Shabbir
This is what my basic understanding of MA,pls correct if iam wrong
Kiran, your understanding is correct in both the scenarios but using moving averages only for trading or investing is not advised because they are lagging indicators as you have understood.
Hello Shabbir
What does the word “Taking Position” in stock marlet means?
Is it related to Intraday trading or Long term trading or both
Kiran means executing any trade. So if I want to buy stock A, and once I trade and buy the stock, it means I have taken position in Stock A.
And one more thing are chart patterns completely different from technical indicators?
Chart Patterns like what u mentioned in ur ebook as shown in following link
http://shabbir.in/ucp-book/
Those indicators combined forms patterns that I prefer when trading and so the name chart patterns.
Hello Shabbir,
Thanks a lot for reply.
So it is like you have chosen some indicators that are more reliable and comfortable and you are trading in stocks by analyzing stock movement with help of those indicators right.
“All of them work but the problem is which one would work for you”….
and shabbir what does above mean,are you talking about type of trading i prefer like daytrading,long term investemnt or any other…
Yes. Indicators work but then if you are not in touch with someone who can time to time help you along, they become almost useless. You have to keep brushing yourself with those indicators and the same thing goes with me as well. At times I just go through my own ebook yet again to get the concept I have been doing wrongly for some trades.
Perfect.
So its just like i learn about any new indicator then i better discuss in some forums like this or eBook forum u have mentioned so that each one of us can share their views right .
Iam very new to this stock market world and hardly new any one trading/expertise in stock market so for me forums like this would help me a lot.
Thanks shabbir for maintaining these kind of forums and sharing your knowledge and opinions
They are not new indicators but same indicators combined to form a patterns. Yes forums helps everybody as you can interact with me personally with any question that you have.
hey shabbir
nice post.
For Technical analysis i have a question,
see for example this site
http://stockcharts.com/school/doku.php?id=chart_school:technical_indicators
Is there a broad classification,some say overlays,some says oscillaotors,some say price band,moving averages ,some say support and resistance indicator.
Does each indicator has specific purpose?
Are technical indicator and overlays are different?
Are there any indicators for knowing uptrend and downtrend?
Iam actually confused a bit when i googled for same,can u throw some light on this
Each indicator has same purpose of predicting the market (uptrend, downtrend) and all of them work but the problem is which one would work for you. Any site online or any book you have to be learning all the patterns and then apply them those that suits your trading ways.
My eBook helps you not understand all the indicators but only those indicators that I prefer when trading in market and help you apply the same by answering any question that you may have in our private members only forum area.
Hello Shabbir
Nice Article for Newbies into Stock Market.
I have a query.
Today i read in one of newspaper that SEBI has allowed PRE Open CALL OPTION in BSE/NSE.Can you please share some information on this?
Thanks
Reddy
Reddy, glad you liked the article and about your query – it is about placing order in pre open market phase
Dear:
Read your article and it is an eye-opener for new entrants in the Stock Market.
Thanks & Regards.
S. Sridharan
Madipakkam, Chennai-600091.
Glad you liked is S. Sridharan.
Hi Shabbir,
Simple yet brilliant, as usual.
I have invested substantial amounts in SKS micro-finance at Rs. 150 based on following data:
a) Good company & management
b) Turn around stock (made losses in the last 8 quarters and started making profits from the last quarter, Q3…..and targeting a profit of Rs. 60 Cr in Q4).
c) Current market price is Rs.150 compared to all time high of ~ Rs. 1500-1600.
I believe that the company will do well in the next 2 – 3 yrs period and the profit will grow at 30-40% Q-O-Q and the share price will also follow suit in the long run.
Awaiting your valuable opinion on the above stock & analysis.
When your views are 2 to 3 years, I think finance sectors will do well but then SKS, would take a long long time to recover and so you have to be very strong to be patient in the correction mode.
On top of that I am not very positive with SKS management. 1500 to 150 would actually make management interested in buy back ideally.
Very educating.
Thanks Masih.
Thanks
this is good one
Glad you liked it Indrajeet.
Hi Shabbir,
I have analysed Uflex like you have mentioned from last one year. Fundamentally that company is very strong in its sector but the stock is not performing. Can you tell what should be done? I am a long term investor should i hold? Buy price is 125 and BV for Uflex is around 178.
Price says to avoid this stock Rohit and if the company is very good which you say then it could be that company is making some future investments and so it may not be right time to re-invest at this moment because I see more downside technically in this stock.
Very useful tips.
Thanks Siva.