Stock Trading Using The IBD 200 Composite List

Once I got a handle on the basics of stock market investing, my first thought was where do I begin to find stocks that are worth investing in? After reading William O'Neil's book How To Make Money In Stocks and Stockbee's post about how to begin stock trading using the IBD 200 composite list, I was hooked on using this list to find potential winners. The IBD 200 list is great because it lists the stocks that are ranked highest by IBD's Smart Select Composite rating and therefore narrows the field of potential stocks to look at. The key thing to remember here is that just because it appears on the list doesn't make it a winning stock, it's still has to have the other CANSLIM fundamentals and a good stock chart setup to find the correct pivot point.

What I do, is take these stocks from the main tables of the eTables service on Investors.com as I explained in my post called where to find the IBD 200, and look for stocks breaking out to narrow the list of 200 to just that I need to review each day. The great thing about using this strategy is that you can adjust your criteria to limit the number of stocks the jump onto your review list by adjusting the breakout thresholds.

My initial screen on the IBD 200 list is a 2% price increase on a 100% volume increase. Depending on the day, this eliminates the vast majority of the stocks particularly if the market is in a downward trend like it has been lately. You can use any screening method you want but that is what I do because O'Neil says that stocks breaking out making new highs are the best ones to look out. Once I've identified those stocks, what I do is then look at the fundamentals to see if they also meet the benchmarks set forth in CANSLIM. If they don't then, they are not analyzed any further.

You can do this each day on the list. By looking for breakouts, you'll be honing in on the stocks showing strength and strong earnings most likely. This list should the be scrutinized against the watch list of stocks you should be maintaining to see if they are better or worse than your top stocks of I'd say 20 or so. Each day, you should review the stocks on your watch list for potential buy points by watching the charts price and volume action to identify specific chart patterns like the cup with handle, flat base and so on.

But even if you do all that, you need to be prepared to sell your investments following strict selling rules and also remember that you should only invest when the market is in a confirmed uptrend and after doing your homework.

Good luck!