To buy stocks, you've got to start from somewhere. If you are just starting from scratch, then I thought what I would do is let you have an inside look into the steps I took to to set up my investing program. When I first started, I knew that I wanted buy stock and also felt that the stock market offered one of the greatest opportunities available to anyone to make their fortune. The key is figuring out exactly what you need to be doing on a daily basis to give you the best opportunity to succeed. Step one is to commit yourself to daily learning. You've got to study the market everyday. Only then can you expect to be successful.
My first goal in developing my system was to try and figure out how to streamline it so that it was as simple and as quick as possible. Like you, I only have so much time in the day. I want to use my time as efficiently and effectively as possible. I laid out my six step approach in a recent post called "Buying Stocks - A Case Study". From this point forward, I decided that I would break down each step on a daily basis as best I can.
The first step for me in figuring out how to buy stocks is determining the direction of the general market directions. My objective is to only invest when the market is in a confirmed uptrend. I have spoke in the past, that the best place to find this information is by reading the Big Picture column and watching the IBD TV Market Wrap on investors.com.
As I write this, current market outlook is "Market In Confirmed Uptrend". Once you know the outlook, start paying attention to the market indexes on a daily basis.
What you are looking for is the price and volume action of each of the four major indexes. Those are the Standard & Poors 500 (S&P 500), the Dow Jones Industrial Average (DJIA), the NASDAQ and the New York Stock Exchange (NYSE).
You can see the chart at the left shows that the S&P 500 closed higher today on lower volume. What you want to see is the index to close higher on higher volume. This is a sign of strength. Today's action on the index was not a sign of strength but more a sign that the index stalled a little bit today.
A quick note on charts. I personally go to investors.com and review the charts there because it's free to do so. I am a subscriber but I like the way the charts are laid out. The other reason I like the chart there is because the volume at the bottom of the index is for the NYSE volume not just the S&P stocks. William O'Neil compares it to the whole market.
With the market in a confirmed uptrend, what I'm watching for is what is called a distribution day. A distribution day is when the market closes lower on higher volume. None of the indexes showed any distribution, which is a good thing for us CANSLIM investors. There is one distribution day on the count to this point.
Once I've identified the state of the market, I then start to look for stocks to buy. The way I like to do it, is by looking for stocks that are breaking out in price on higher volume. The best place to do that is by watching the stocks on the move screen in the IBD. Every day they list stocks that are breaking out. I then look at these stocks to see if I want to include them on my watch list.
I usually sit at the computer and pull up my eIBD and write down the tickers of the bold face stocks. These are stocks that have an EPS and RS rating of 80 or higher.
The stocks that met that screen today were:
PPD, ATR, JKS, LXK, GMW, CPO, OPNT, SINA, OPEN, SONO, BCPC, DISCK, GIII, NTAP, DISCA, RVBD, JOBS, PRGO
Once I have these list of stocks, I check to make sure that they trade at least 100,000 shares in volume. I then make a run through of each stock and eliminate those that don't meet the following criteria.
- Composite Rating > 80
- EPS > 80
- RS > 80
- Volume > 100,000
- SMR Rating > A or B
- Acc/Dist Rating > A or B
- Group RS Rating > A or B
- EPS % Change Latest Quarter > 25%
- Sales % Change Lastest Quarter > 25%
- EPS Est % Change Current Quarter > 25%
- EPS Est % Change Current Year > 25%
- Float < 100 million
Today, this left me with three good stocks to buy based on my criteria as:
JKS 10 million shares
OPEN 15.5 million shares
RVBD 56.6 million shares
I then add these three stocks to my watch list to watch from this point forward. As you can see, I listed them in order of smallest float to largest. A tip I've picked up from stockbee. He has said some of the best stocks to buy are the ones with less than 100 million shares in float.
To begin the learning process, I then am going to buy stocks online in a simulator to build up some experience. I will put in a market order for approximately $1,000 shares of stock (roughly 36 shares) to see how this plays out. Good luck with your stock market investing and I'll keep you posted on mine.
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