"A closer examination of the research data and posts made - shows an emphasis on huge amounts of data, and news/events around the company or industry, butnegligible emphasis on Valuation. End of the day thePrice you get in, is themost important. If you get the Price entry wrong, all your in-depth research is practically useless. On the other hand if you get the entry price right, you do not need much in-depth data. Getting the big picture right is enough! "
The above para is taken from Donald’s recent post on Transparency and Accountability.
What I wish to emphasize here is the point which he has beautifully summarized. I repeat it here once again:
End of the day thePrice you get in, is themost important. If you get the Price entry wrong, all your in-depth research is practically useless.
That is exactly where Fundamental and Technical Analysis marry each other.So how does one pick a winner? There are some rules to be followed while selecting a stock which i wish to enumerate below:
1). FUNDAMENTALS**: The journey begins with Fundamental Analysis. Once the stock meets the parameters laid down, then short list the stock. My personal experience has been this: I was able to find out good stocks based on fundamental analysis. However, my success used to get eroded by the entry at wrong prices. This has got arrested. The analysis here on Valuepickr has been top notch, so i leave this part alone and concentrate on my strength, that is Technical Analysis.**
2). MARKETS: The next thing one should look at is the Markets. If the markets are trending higher, then the stock one is looking for usually should be performing well and vice versa. There may beaberrations, but generally the rule applies. So look at the Bullish Percent for the Market, and the Technical Analysis for the Nifty on the charts.
**3.**SECTOR: Check the sectors which are performing well. Are they overbought or oversold. This one can learn from the Bullish Percent of the Sector. Last time I had written here how the Banking Sector was oversold and one could find stocks at very cheap valuations. Thereafter there was a sudden change in the sentiments and stocks which were beaten down gave a terrific return. Example: Yes Bank. From 225 it jumped to 410.
**4). **STOCK: See on the charts if the stock is trading in the X column or O column. This will tell you if there are more BUYERS or SELLERS. Check for BUY signals or SELL signals, check patterns of HIGHER TOPS AND HIGHER BOTTOMS, LOWER TOPS AND LOWER BOTTOMS.
5. TREND: There is a saying " TREND IS YOUR FRIEND". Very true. Check if the stock is trading above or below the Bullish Support Line and the Bearish Resistance Line. This will help you to know what is the trend.
**6). **MOMENTUM:
a. Check if the 5 day EMA has cut the 25 day EMA from above or below. This will tell youif the stock is going to give a break out in the short term. For the long term one should look at the 50 day EMA and 200 day EMA.
b. Check the RSI. See if it is above 70 or below 30. This will let you know if the stock is overbought or oversold.
c. Check the CCI. See if it trading below 100 or above 100. Whether it is negative or positive. This will again tell you if the stock is overbought or oversold.
If you follow the check list given above, I am sure success will be waiting at your doorstep.
If you do need further help, I am at your service. You can call on me.
Tony