Buying Stocks

Today I wanted to talk a little bit about buying stocks. Most people have heard of the stock market, but very few are investors that buy stocks on an individual basis. Most buy through their 401k plan in the form of mutual funds. Making the leap to buy stock on your own though can be scary and most people don't have a clue where to begin their search.

Over the years, I've found the best source of daily information for stocks is the Investors Business Daily. Also known as the IBD for short, I find it a better source for ideas on the best performing stocks because of it's specialized stock screens based on the technical analysis of a stocks price and volume history. I find the black and white of reading a stocks chart to be a much better way to predict a future stock price than what the pundits on tv want you to buy. You can base your decisions on hard numbers like earnings, return on equity and sales. While stocks can go up on emotion, the biggest driver to an increase in a stocks price is supply and demand. Quite simply, the more people who want a stock, it drives up the price just like an auction on ebay drives up the price of a rare item. The only difference is that institutional buying drives up the price of stocks because of the size of the purchases. How do you know when a stock is being purchased by institutions? By watching it's volume. How can you see what institutions are buying in a stock? It doesn't really matter because as long as they are buying is all you care about.

Here's a snapshot of today's front page on their website today that lists some potential stocks to buy based on their potential volume change.

Buying Stocks Based On Increasing Volume Is An Excellent Indicator To Upward Price Pressure

The very first stock on the list is Schweitzer Mauduit Intl (SWM) with a 413% change in volume and a 11.29% change upward in price. Why did the price go up? Because more people wanted it, plain and simple. Let's say I was watching this stock screen on a daily basis and this stock appeared for the first time it would definitely be placed on my watch lists.

How To Buy Stocks On Volume

If you are looking for the best stocks to buy, you'll want to concentrate your efforts on looking for stocks that the big guys are buying, go along for the ride and get out once they start doing that. How can you accomplish that?

1. Identify companies that have increasing earnings and increasing sales. We're talking double digits here and it's best if it's over 20-25%.
2. Buy stocks increasing in price with increased volume (a sign institutions are buying).
3. Sell them when they start decreasing in price when volume is increasing (a sign institutions are selling).

While a lot more goes into buying stocks, this is it in a nutshell. As an investor it's your job to identify where the big money is flowing and follow it. That is the key to making money in stock market investing and that's what we'll focus on here at Stock Market Investing Today.