Every trader wants to know the best stocks to buy or the next best tip that will give him or her the edge while trading. A good stock picking strategy that will find you the best stocks to buy is also highly dependent on your trading style. For example, a trader that has a longer term trading goal will use a list of criteria that skew towards fundamental analysis.
Shorter term trading will be tuned towards technical analysis. The truth is finding the best stocks to buy requires experience, time, and energy. It is not something that can be learned completely by reading books. With that said, sticking to the following list of general best practices when choosing stocks will aid you in maximizing your chances of picking successful ones.
1. High Liquidity – When trying to find the best stocks to buy, stocks with high liquidity means that the exchanging of shares happens very quickly. This usually occurs when the sell demands and the buy demands are met very rapidly. What this means is that it is very unlikely that any one specific seller or buyer is able to influence the price of the stock to a large extend, if at all. It also means that if you are holding a bunch of stocks, you are more likely to sell for the price that you see on the trading screen. If the stock is illiquid, there is a chance that your order will be stuck because it cannot be filled completely or because the spread is too wide.
2. Trading Volume – Volume of the specific stock measures the number of times its shares have been traded in the system within a given time frame. The higher the number of shares traded, the greater the volume. Generally, you want to trade a stock that exhibits high volume because volume is directly related to the amount of interest placed in the stock. When the amount of interest in the stock is high, there is volatility and fluctuations in price. This is what traders look to exploit in their market activities.
3. Fundamentals – The importance of fundamentals on a particular company depends on the style of trading you are adopting. If you are using scalp or day trading, fundamentals of a company do not matter as much. However, if you are looking to adopt a swing trade or position trade strategy, you might want to consider the fundamentals of the company in addition to technical analysis. Fundamentals of the company can include P/E ratio, ROI, and general macroeconomic trend of the market that might impact the company in the short term.
Overall, these are just some of the factors that can help you find the best stocks to buy. However, a stock worth buying does not mean that you will necessarily make a profit off them. In fact, sometimes it is the fault of a stock that was worth trading which bankrupts a trader. Always exercise caution when you jump into a stock and use multiple tools to evaluate a stock to minimize the risks you are exposed to.