Hot stock tip
For a year or so, the markets have been very rude with the investors. The first time when the Nasdaq nosedived, every short term trader has mistaken it to be a great investment opportunity and pumped in wealth into the stocks. Slowly, the dips started to be extended and now, its the reversal of the trend that whenever there is a bull run in the market, traders just short to recover their money already stuck in the stock positions. They never think further to test whether the next day may throw better opportunities because it is a harsh reality that bull runs never sustain for more than half a day or so. In between, if there is an oil price surge, the trend is even shorter lived.
Even in these choppy sessions, some traders end up making money by following certain techniques of averaging, and short covering in the short term. They follow certain golden guidelines which irrespective of any stock, are sure to be applicable regarding its behaviour. A few are enlisted below:
The stock that is beaten the most usually raises the most. So, if you are intending to invest money in stock markets, just analyse which stocks are at the levels equal or nearer to their yearly lows. Thats not very hard in these days. To have a better idea, take a look at the 3-month and yearly charts. The best dips induce the best of opportunities. Added to this, if the stock is a front runner with great managerial talents (which is depicted in the balance sheet and other financial statements), and has a Price Earnings (PE) ratio less than that of the total markets PE, then that is the best stock to buy as it may throw up some great bullish opportunities at least in the short run.
It is the general tendency of the investors to become elated when their stocks are soaring high. They feel that they have picked a hot stock, jump out of joy and check ten times how much profit they are standing on and just forget one simple thing i.e. to sell away that stock immediately. To them, selling that stock is like killing the golden goose. But, in the stock market, gold is found only when you kill the goose. If you dont sell the stock at that time, the next day, others who book profits push the stock down and you will be left only with the goose with no gold in its belly. On the other hand, a prudent investor just books profits immediately and re-enters the stock at lower levels so that his cost of acquisition is minimum and he is still left with the money in the hand even after investing. In this way, hot stocks are grabbed by the people who analyse its movements very closely.
Actually, there is no all time hot stock. A hot stock means a stock which is available at reasonably low levels in relation to its earnings potential. The best technique to find it is to check for both the
Fundamentals of the stock and
Technicals of the stock.
Fundamental information of a stock is found in the financial statements, the ongoing market influences on the sector in which the stock is traded, the business processes of the stock whether they bank on economic logistics and their booking order growth for the next two years etc. It is highly impossible that all the information pertaining to one stock in these corners is always positive. For example, if there is a stock in the real estate sector, the company may have good order growth, prudent management etc. But, the market influences owing to the subprime crisis may pull that stock down. For such stocks, investment has to be made on a long term basis because, some day or the other, the business will surely boom up. At that time when the market influences are positive on the stock, it is the time to sell it off and not hold it. It is because, at that time, the PE valuations of the stock become over and above the market valuations and that is the time to exit the stock.
Any long term investment can be dangerous if not planned from the technicalities of the stock. The technical charts are the indicators of the stocks performance over a period of time in the past. They indicate the resistance levels and the high/low levels which the stock is supposed to revisit every now and then. So, whenever you pick up a stock for investment, to make that a hot stock, you need to patiently decide the yearly low levels of the stock. Wait for the market to shed the extra points before the stock becomes attractive and then, enter the stock for happy investing.
In this connection, be careful to pick up your stocks carefully. Dont believe those spammed e-mails/mobile messages that a particular stock has been beaten down very much and as such is very attractive with regard to price earnings calculations versus its earnings per share. Believing the analysis, if you go and invest in that particular stock, at first, it tends to move upwards for some time owing to the investment of many investors like you into that stock. Later on, those people who have induced you to buy into the stock just get out of the stock by taking the extra money put in by you. The result is that you are stuck into that stock. You have no other choice than either to book losses or to wait for another bull run which may not be possible as you are not tied up with those spammers. So, whenever you get such an alert, just delete the message even without reading the stocks name. In this way, you can save and even plan for your money to grow.
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