How To Find The Best Stocks To Buy

Now that the market is in a confirmed uptrend according to the IBD, it's time to focus on how to find the best stocks to buy. The best time to do this is before the market confirms an uptrend so that you can hit the leaders right away -- right when they breakout. But, if you haven't done that, it's always a good time to start putting a list together. That's what I wanted to do today. Start putting a list together that we can use to identify potential winners.

Before I get into a step by step process you can start putting together to find stocks to buy for your portfolio, I wanted to spend some time going over why it's important to do your own research instead of relying on the media and the "so-called" experts. The reason is because the people that really drive the market are the ones that have billions of dollars to work with, not the little guy. When you have built an empire like that, you have to figure out a way to use that capital. It's my feeling that they have teams of people finding ways to put that money to good use. If you want another example of how this might come about, you can read this post about the financial con of the decade. That being said let's move on to how you can capitalize on it. The CANSLIM theory does a good job of helping you do that if you can perfect it.

Step one in finding good stocks to buy is weeding out the ones that you don't want. It's a process of elimination called stock screening. A good example of a stock screen is the IBD 200 talked about in the Stockbee IBD 200 trading techniques. The IBD 200 list the top 200 stocks ranked by the Smart Select Rating of 96 or higher. But just because a stock appears on this list doesn't mean that if you buy it tomorrow that it will go up in price. It also needs support from the big money buying into it. A stock screen only provides you with stocks that have the potential to meet your watch list. After that I confirm that the fundamentals like earnings and sales meet the thresholds that I want. Then you need to identify a potential buy point before you buy. Finally, you need the institutional support that can help propel the stock up in price.  Keep those steps in mind. The buy point is best determined by analyzing a stocks chart.

You can take the time to develop your own screens or make use of the ones in the IBD. What I suggest is that you take the most important screens in the paper and focus on those. You'll find most of what you need in the Making Money section of the paper. Let's take today's paper as an example. Here are a few important sections you could focus on.

NYSE + NASDAQ Stocks On The Move
52 Week New Highs List
Stocks In The News
Timesaver Table
IBD 100

In many cases, the stocks listed in these screens are the ones with that garner strong institutional support. This is key and here's why. The goal of CANSLIM is to identify stocks with strong earnings and sales and buy them .10 above the pivot point on breakout volume of 40% or higher. When volume and price increase substantially, this means that the stock is under accumulation. It's at this point where watching a stock chart tells you more than the media ever will about a stock.

You see the price of a stock is a factor of it's supply and demand. More buying drives up the price. The big money tries to hide their buying activity until they are ready to get out. That's when you start hearing about how great that stock is. Why? Because they need buyers at that point because the stock is going to fall in price once they start dumping it.

Your job then once stocks pass your stock screens is to find stocks breaking out on heavy volume. Be careful though to not buy them more than 5% higher than the breakout price. This is easier said than done. But with practice you can start to improve your stock market investing skills. Remember that you can lose money in the market even picking stocks that show up on the screens in the IBD. You have to be prepared to sell any stock that isn't acting right or that falls 8% below your purchase price.

Good luck!