The saying goes, "Buy low and sell high". It is a true statement, but it isn't much help in telling you how to find stocks that have true profit potential. One of the stock investing basics is to find stocks when they are cheap. But what does that really mean?
Cheap does not mean "low-cost". There are lots of low-cost stocks out there. The problem with many of them is that they stay low cost, so there is no profit potential in them. "Cheap' means that it is priced less than its real value. In other words, when a stock is cheap, you have the opportunity to buy the stock at a bargain price and sell it when the market realizes its true value.
So how do you find cheap stocks?
One way is to use fundamental analysis. This is where you analyze the performance of a company, its future profit and growth potential, its current activities and the activities of its industry. Here you are looking for positive indicators that the company is going to grow its sales, profits, or whatever drives that particular stocks price. The problem with fundamental analysis is that you can't really be sure whether the growth will actually happen, or if it does, when the stock price will rise in response to it. This is the better analysis tool for slow-moving, stable stocks like those on the NYSE.
A second way is to use technical analysis. This is where you study the trends in the stock's performance over time. Using charts, you can identify patterns that signal what a stock price will do in the future. The good side of this is that it is more immediate, meaning that when you spot a pattern, it can indicate that a shift from flat or falling price will shift to a rising price very soon. This is the better analysis tool for fast-moving stocks trade on the AMEX and OTC markets.
A third way is to subscribe to a stock picking newsletter. Here, you let an expert and an industry insider tell you which stocks are cheap. You have to pay to subscribe to the newsletter, but it can pay off big when a stock hits. Before subscribing, check out the author's credentials and track record.
Download my free guide, 7 Steps to Online Trading Profits to learn how to get your online trading going fast and profiting quickly at http://www.BeginningOnlineTrader.com
Daniel B. Johnson is vice-president of a wireless communications company based in Dallas. He maintains a successful online trading career on a part-time basis to earn an additional income stream.
AFP - Wall Street blue-chip stocks suffered their worst single-day point decline Monday as markets went into convulsions after US lawmakers rejected a massive rescue of the financial system.
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