What Should You Look At When Investing In A Stock

When I first started stock market investing, I was a little overwhelmed. I mean what should you look at when investing in a stock. Experience has taught me that you should start by looking at a companies earnings. Earnings are the driving force behind some of the greatest stock market winners of all time according to William O'Neil. He developed the CANSLIM strategy. A stock with strong earnings is the foundation of a good growth stock and you need to identify stocks with earnings growth of at least 25% or more.

Once you've identified a stock with strong earnings, the next thing you want to look at are it sales. Sales should also be strong. If you see a company with strong earnings and poor sales, I'd think long and hard before I would start investing in a stock like that. That's a red flag that earnings are about to sink.

Once you have find stocks that have strong earnings and sales, the next thing you are going to want to do is start reviewing a chart of the stock's price and volume action. You want to start identifying specific chart patterns. The most famous of these patterns if the cup with handle. These chart patterns will help you figure out what he calls the "pivot point" or the best buy point. For me, this is the toughest part of the canslim strategy. And even if you are right on the buy point, you still want to see it do what is called "break out" in higher than average volume.

These are just a few of the things you want to see before you invest in a stock. Putting them into actual practice is the hard part. I know that for me personally, I find it easy to get stocks that are fundamentally good for CANSLIM, I still am working to perfect selecting pivot points. While I can identify when a stock is being accumulated by the big money funds, I still have a long way to go when it comes to using charts and identifying the specific patterns.

This has shown in my most recent investment results as I've been stopped out in the stocks I've purchased lately since I have mis-identified the exact buy point for the stock. When it has encountered a pullback, I've had to cut my losses at the 7-8% guideline because of it.

Making mistakes is a good thing though, because that's the only way you'll know if you are looking at the right things when investing in your stocks.