Step 1. Decide the time and the general investment strategy. This step is very important because it will dictate the type of stocks to buy.

Suppose you decide to be a long term investor, you want to find stocks that have sustainable competitive advantages along with stable growth. The key to finding these stocks is to look at the historical performance of each stock over the past decades and do a simple SWOT (Strength-weakness-opportunities-threats) analysis on the company.

If you decide to be a short-term investor, you want to join one of the following strategies:

a. Momentum Trading. This strategy is to try to increase their stocks in both price and volume over the recent past. Most of the technical analysis to support this strategy of trading. My advice on this strategy is to seek stocks that have shown steady and regular increase in their prices. The idea is that when stocks are not volatile, you can simply ride the up-trend until the trend breaks.

b. Contrarian strategy. This strategy is searching for the stock market reactions. Research shows that the equity markets is not always efficient, which means that prices do not always accurately represent the values of stocks. When a company announces a bad news, people often panic and the price falls below the fair value of stock. In deciding whether an excess of stocks reacted to a story, you should consider the possibility of recovery from the impact of bad news. For example, if the stock drops to 20% after the company loses a legal case that has no permanent damage to your business brand and product you can be sure that the market has reacted too. My advice on this strategy is to find a list of stocks that have recent fall in prices, analyze the potential for a reversal (through candlestick analysis). When stocks show candlestick reversal patterns, I would go through the recent news to analyze the causes of the recent price drops to determine the existence of an excess of sales opportunities.

Step 2. Conduct searches that give you a selection of stocks that is consistent to your investment of time and strategy. There are many stocks Vagli on the web that can help you find stocks based on your needs.

Step 3. Once you have a list of stocks to buy, you would need to diversify them in a way that gives the greatest reward / risk ratio. One way to do this is conduct a Markowitz analysis for your portfolio. The analysis will give you the proportions of money you should allocate to each stock. This step is crucial because diversification is one of the free-lunch investment in the world.

These three steps should begin in your search for making money on the stock exchange. They deepen your knowledge of financial markets, and provide a sense of confidence that helps you make better trading decisions.

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