I'm regularly asked how I go about picking winning stocks, especially now with the market's recent pullback.
The short answer is: I simply focus on what works.
Since there are over 10,000 stocks out there, you need a way to find the good ones.
And by focusing on what works vs. guesswork (or worse), you'll not only be able to pick winning stocks, but you'll be able to do so consistently. And that's really the key to success; having a repeatable way to find profitable stocks, again and again and again.
I run a lot of individual strategies. But I will often go thru a checklist on all of my candidates before I get in.
I'll also look at the charts:
- I'd like to see the weekly price and volume increasing. A rising price accompanied by rising volume is a great sign of strength. And it could show institutional buying. These are great indicators of increased demand, which usually means higher price.
- Moving Averages: Ideally, I want my stocks trading above the 50-day and 200-day moving average. Being above the 10- and 20-day is a bonus. But being above the long-term and medium-term moving averages, i.e., the 50- and 200-day, is a bullish sign.
- Chart pattern: Is the chart pattern bullish or bearish or both the daily and weekly chart? I will not get into a stock with a bearish chart pattern. If it's bullish, yes. If it's neutral, ok -- assuming it's hitting on the other items above. If it is bearish, it's a no go.
By sticking with this basic set of proven criteria, I know I have a high probability of success in picking winning stocks. And if it doesn't work out, I don't have to panic and wonder if my system works or scurry to change these up. That's the kiss of death.
Picking winning stocks consistently comes down to a set of rules. And these are my basic building blocks. I look at plenty of others as well. But this is my basic checklist.
And here are five stocks that passed the checklist this week:
(CLW - Snapshot Report) - Clearwater Paper Corp.
(CAG - Analyst Report) - ConAgra Foods, Inc.
FMFC - First M&F Corp.
(FAF - Snapshot Report) - First American Financial corp.
JRN - Journal Communications Inc.
If you consistently do what works over and over again, you too will find yourself picking winning stocks, beating the market and accomplishing your trading goals.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks portfolios and strategies are available at: http://www.zacks.com/performance.