Choosing stocks for trades

I have some questions posted to me on how do I choose my stocks? What are the resources I use and where do I get my research?

The good news is that most of the resources available to me are free. The bad news is that there is an information overload out there that I need to strictly prioritise the tons of info flowing into my computer every day!

Information can be classified into different categories – macroeconomics, specific fundamental information on stocks and technical analysis.

For macroeconomics, I like Business Week, Barron, The Economist, and Wall Street Journal. I subscribe to Business Week as it covers core current issues pretty well with an emphasis on information technology. I am a subscriber for Business Week probably for more than 15 years! I had been very involved in technology in my career and thus these articles in Business Week are of great interest to me. The rest I just read it from the local libraries which I visit occasionally.

For those who like a daily letter, I highly recommend you subscribe to John Mauldin’s letter issued out every week. ( www.johnmauldin.com). It contains a balanced insight into the economics situation worldwide. I also like Doug Casey although I may not agree with him all the time. Doug is a libertarian and a perma-bear on America. He is a big time speculator. He can be very extreme many times appear arrogant. But he has good contrarian arguments, which I find it brilliant and out of the box. I have been reading his thoughts for many years. In terms of timing, he could be totally wrong. Just search Doug Casey and you can subscribe to some of his newsletter daily. Most of these newsletter will try to sell you some services. You do not need to subscribe to the services.

For some radical radio interviews, I listen to KingWorld news regularly. Eric King brings an unique perspective on the economics front which is not normally covered by the main stream media.

An interesting site which I read regularly is http://www.madhedgefundtrader.com/. From here, I get some macroeconomics perspectives and many times specific ideas on individual sectors or stocks. He has a humorous style in presenting his thoughts in his writing and interviews.

I seldom watch CNBC although I have access to it on cable at home. It is too sensational seeking to drive emotions and gather points for their advertisements. Sometimes I watch Jim Cramer just for entertainment. It was very funny when I saw him torn apart by comedian Jon Steward last year. However, I do like BNN of Canada. It has a commodity bias and discuss many stocks listed in Canadian exchanges. You can watch most of the interviews on the web. www.bnn.ca

There are 3 websites that I use regularly for company fundamentals. I like Yahoo and Google finance. They provide most of the news, financial data, analysts views and even blogs ( in Google finance ) you need. You can get a rough feel on where the stock is going. Finviz.com is another great site. It provides a heat map and also technical synopsis of specific stock in a concise way using trend lines that I find useful.

I participate regularly on a website site which caters to options traders. ( www. optionsanimal.com ). I attend their market updates regularly. I have a paid membership. From here I get some good discussions of the market, option trading strategies and some specific ideas on stocks not just from the organizers from also from people in the community of which many are excellent traders themselves.

For technical analysis, I do not really follow anyone. I have my own system. But I find some cycle analysis, fibonacci, Gann ratios and angles fascinating. I do not take Elliot waves seriously because I find it very subjective and often based on hindsight. I want forward leading indicators not lagging indicators. Combined together, Fibonacci and Gann analysis can be very powerful for trading commodities. One website I like is Marketclub.com. Sign up for the periodic free video and Adam Hewlitt, the founder will show skilfully how he predicts directions for some key commodities and indices using his proprietary triangle technology together with fib. ratios and cycles. He is uncannily accurate in many of his predictions. It is also a good example on how to choose a system and stick to it and you will make money eventually. His triangle system is actually similar to some of the signals I use in my system.

A watch list of stocks is created based on the information gathered above. Every time a new idea comes to mind, I will add it to my watch list. At the same time, I revised my watch list every week and remove stocks that I do not want to follow. The watch list has a spread of companies in various sectors from commodities, pharmaceutical, consumer and technology.

I approach the market on 3 levels. First, fundamental data must show me the directions for the stock. It could be up or down. If I choose a stock that is bullish, the company’s fundamental data must support the bias in alignment with the macroeconomics directions.

After deciding on the stock, technical analysis is used to determine an entry. Normally, a reasonable technical system with some simple indicators will do. It is not a precise science. I use a mixture of price patterns, price actions via moving averages, slow stochastic, MACD, W % and Bollinger band. I had used these indicators for more than a decade and thus have a good feel of how they behave.

Price patterns are predominantly support and resistance plus varieties of patterns giving hints to market psychology. It is subjective but often it works. I believe you just need to choose the indicators that serve you well a period of time and stick to it. If you combine it with fundamental research and options, the technical system should serve you well.

Once I identify stocks that are ready for trades, I will put it into my hot list for actions on the next day. Before I trade, I usually wait for confirmation on the price actions on the trading day.

In the third phase, options strategies are used to hedge the trade to control volatility, fear and greed. It is described in more details on other posts on this blog.

Some final advice. Trade on a plan and not on emotions. Know the reasons why you are in the stock. Stick to your plan until with your targets clearly defined together with primary and secondary exits. Take full responsibilities for what you do. Keep a detail record of your trades. Over time it will help you tremendously.