If you recently started investing in the stock market, you probably notice how complicated investors can make the stock picking process, they usually use indicators, algorithms and artificial intelligence to make their next move, however for me personally I prefer to make things simple and use some common sense to pick my next stock, this in general has helped me find amazing companies with great upside potential.
My 3 step process is very simple, now this is not financial advice so you always need to find your own method and you must do your own research, however this can help as a guideline to help you find the next hot stock. Note that this can also be used when picking a new Cryptocurrency or when investing in the Foreign Exchange Market.
Getting a discount
1. First, I do like to look at the chart to see what the highest and lowest price is, for example you never want to buy a stock when it is at the highest price, you always want a 5% to 10% discount fro the top and make your entry, note that all of my positions are long term holds and I usually sell when my shares hit the 52 week high, for example, if you are looking at the S&P 500 o Bitcoin, you always want to wait for the pullback before starting your position.
Does the company make money?
2. My second step is to look at earnings and see how profitable the company is, not only do I look at the earnings but I also get a feel of what people buy, for example I look where people spend their money, usually food, communications and entertainment are areas where people spend money, for example Comcast is used by most people I know, they provide Internet, Cable and Communication services and they are going nowhere, another example is Walmart, people need groceries correct? When you look at the company earnings you will see just how much revenue and net profits the company generates, one easy way to find this information is by using Google Finance.
Stock popularity matters
3. Lastly I see how popular a stock is, I always browse Stock Market Forums, Stock Twits and Twitter to see what the trending stocks are, if people talk about your stock there is a good possibly that people will buy or sell these shares, you can make your purchases based on the trends, for example you can have an amazing company that is profitable, has great management and the stock could go nowhere, that is because the market needs a catalyst to move up or down, this is called supply and demand, if there is no demand, there will be no buyers or liquidity.
As you can see, this is a simple way to select great companies that will perform well, for the most part, buying and holding long term is the best way to make a profit in the stock market however always look at the chart and have an exit strategy as the stock market does not always go up.
As I mentioned before, this also applies to crypto, forex and other markets! Before investing do your own research, even following these three steps will help you increase your chances of getting into a profitable trade.