Stock Picking: Buying With a Proper Base
Stock picking is not something for the complete novice. However, if you have done some trading, and you are interested in bringing your game up a notch, you can start thinking about buying specific stocks to add to your investment portfolio. This can be an especially good time to start thinking about adding stocks to your holdings, since the stock market appears to be having a bit of a rally. (But watch out: There are some predictions — notably by Nouriel Roubini — that have the Dow falling to 4,000 by the end 2009.)
If you are looking to try your hand at stock picking, it is important to remember that one of the most important rules is to buy when a proper base has formed. Investor’s Business Daily has 5 things to check for when evaluating a base:
- Look for stocks that have broken through to 20% above the last buy point.
- What’s the base-building action like? You want more weeks of buying than of selling. Look for regular price gains.
- Is there good prices support? A solid base will have a price that is above the 200-day moving average.
- Watch out for “handles.” These are a pull back that gets rid of weak shareholders. You want the handle to be at the upper half of the base.
- Are there strong signs of demand? Look for indications that demand is strong out of the base.
It can be difficult right now to find quality stocks to buy. However, there are some that are forming bases right now, and the next couple of days might help you identify some good bets.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
December 15th, 2008 at 3:17 pm
[…] of the important things to look for in terms of choosing stocks is the strength of the underlying fundamentals. One of the fundamentals you can look at is cash. […]