FINDING THE RIGHT STOCK

You can understand the languages used, the methods of trading, and your objectives, but without knowing how to find suitable stocks to meet your purpose, you are still disadvantaged. Most online brokerage firms have good research areas on their system. Personally for research, I like E*trade. (http://www.etrade.com/) To me the disadvantage with E*trade is the price of their commission. Unless you are a power trader, their commission is a little high for a beginner, but in my opinion their research is simply the best. ScotTrade is another good choice. I have not used them, however, their commission is reasonable because they are the home of the $7 dollar trade.

Many beginners will try to start with small investment capital and this limits the number of shares available to purchase. If this is your situation, you may want to consider penny stocks. Penny stocks are not without risk, in fact, they fall into a different category of risk but many find them a good place to start. If you buy 5000 shares of a .25 stock and it moves up .01 to .26 and you sell at .26 you have earned $50 minus the commission. Your investment would have been $1250 plus commission. This is a 4% return on your investment. That does not sound like a good return, but you must remember, stocks usually move continually, thus your investment may only be for a couple of hours. I receive emails all the time from people recommending penny stocks. I can’t say their advice is good or bad, just that they are always in my mailbox. Two sources for these recommendations are http://www.otcstockexchange.com/ and http://www.hototc.com/. A major advantage to trading in penny stocks is you can buy a lot more shares. The stock only has to move a small amount before you can make a profit. If you exercise great care it is sometimes very easy to buy a stock and sell it again in the same day. There is a risk in this. If you make three such trades in three days, you become listed as a “pattern day trader,” and certain restrictions apply.

When you add the commission for both the purchase and the sell to the price of the stock, unless you have a good number of shares, this increases the gross expenditure of your investment and it is more difficult to make profit. If you are in this category with a limited amount of investment to spend, my next choice is Zecco. (http://www.zecco.com/) Zecco trades cost $4.50 per transaction. If you trade Options, you must add another .50 per contract to the price of your purchase and sale. Another plus for Zecco is they give you 10 free trades each month if you maintain at least $2500 in your account. I am a little disappointed with their research capabilities; however, they are a new company and are making improvements as they go. If you email them with a question, they are quick with their response.

I have always used a stock charting service to find my stocks. The only one I have used is TelChart, so I can not speak for any of the others available. TelChart is configurable to your needs. You may find it a little intimidating at first but they offer good tutorials. With TelChart you can establish parameters in your search and find just about any type of stock to fit your interested. You are able to establish price ranges from 0 on up to the highest amount. I usually set up several different price ranges then when I have little uninvested funds, I can find a good reasonable priced stock to place the rest of my money in. You need to keep all of your unused money working for you. One of my main objectives is to find stock that can be optioned. My next objective is that it pays a dividend. Those are just two of my objectives in looking for stock.

When you use a charting service such at TelChart, consistency is easy to spot. The price of a stock is almost never standing still. It is either going up, down, or moving sideways. By studying the chart for a stock, you can determine what it has done over the past few months and while this is definitely not a guarantee it will continue in this pattern, it does give you an idea of some predictability. The website for TelChart is: http://www.worden.com/ and at this time they are offering a discount. Their advertisement states the price will be different December 10, 2007. Another advantage of using a charting service is you can move backward and forward in time to study what the stock you are interested in has done over a long period. While studying your chart pay particular attention to the trend of the trades. Is the stock trending upward in price or down? If it is trending upward or downward, at what point does it usually reverse its course? Let me caution you again, just because it has traded in a certain fashion does not guarantee it will continue in the same pattern.

Let my inject something here I should have said in the very first blog. You should never invest money you need. I have heard three rules from several different sources and I will use them here. Never invest money you cannot afford to throw away. Always know your selling point before you purchase a stock. Moreover, you should never get greedy and try to hold out for higher prices. When the stock reaches your selling point, sell, even if it is still trending upward. When discussing these rules with people I teach in a one on one class I emphasize this last rule and make it rule number four, “never get greedy.” I am retired; however, I have a part time job. This job gets me out of the house for a little while and the extra income is not in the budget. Since one of my pleasures is stock trading, part of this money is usually invested. This is how my wife and I divide this income. We pay tithes to our church first, and then divide the rest in half. I give her half to use as she wishes, and I put my half in the stock market. We could throw this money out the window, not that we would be that foolish, just that it shows the caution that should be emphasized in your investing. Never use grocery, or rent money and hope you will be able to get rich in the stock market.

I hope you enjoy today’s writing, and as always, comments are certainly welcome. Just click on the comment link at the bottom of the page. If you have a topic you would like to have me comment on, just ask and I will try to answer.

Kermit