How should I pick shares?
You may wonder how you go about picking shares. Well first of all it helps if you know what market you are going to buy shares from, then you can start picking shares from your chosen market.
Traders go through two main processes when picking stocks. These processes are called fundamental and technical analysis.
The first stage is fundamental analysis.
Fundamental analysis is the process of evaluating a company's financial health. This is an important stage in picking a stock. Simply put, you do not want to be buying shares in companies who are making losses as their share price is very likely to go down.
The second stage is technical analysis.
Technical analysis is the analysis of a company's stock performance through the use of stock charts. Technical analysis involves studying chart patterns, technical indicators and resistance lines to find out whether a stock is likely to rise or fall.
Countless studies have been undertaken on technical analysis to find the most profitable chart patterns, thus resulting in courses, books and e-books, which all offer you technical analysis techniques and strategies for making regular consistent profits.
Note: Technical analysis is not often used by long term investors as they are interested in the stock price in years not weeks. Find out more about different styles of trading.
The reason for going through these two processes is to gage the long term (fundamental) and short term (technical) prospects of a stock. If both the fundamental analysis and technical analysis point in the right direction then it will likely be a good time to enter the stock trade.
We strongly recommend you take a course in trading shares before trading with real money, read why.
To help with fundamental and technical analysis there are websites which provide screening (fundamental analysis) and trading software charting facilities (technical).
