You can decide to buy a stock using very basic logic. It can be as simple as, “My bank is great. I’m going to buy its stock.” And there you go, you own a dividend-paying stock. Those who want to build a more diversified stock portfolio seek more information and try to pick stocks using some strategy.
My process for picking stocks is quite simple and involves less information than what is required by trained financial professionals. I don’t manage other people’s money, only my own, so I’m less stressed out about aligning a certain number of factors before buying or selling a stock. My strategy is quite loose in form, but I feel that being rigid will lead to over-analyzing and worry. I’d rather be relaxed and let my trades work when they do because if I panic or get too excited, I’ll sell them too soon.
With stocks, I operate on different time frames. I sometimes day trade, and I always close the position within a day or less. My main thing has become swing trading, which means I’ll hold a position anywhere from over a day to a few weeks or even a few months. And then I’ll do real investing where I’m looking to hold a solid dividend-paying stock until I retire.
I don’t recommend that anyone day trades, it’s a far too risky way to handle your hard-earned money and it’s not investing at all. It’s gambling. Many might argue that swing trading isn’t investing either, but it depends on how you look at it. I see it as shorter term investing. Your level of involvement can vary from being very active by watching stocks and the markets, and managing your trades all the time, or you can be more hands-off and just be willing to do such things occasionally. I’m very hands-off with my swing trades. Most of what I’m going to be talking about is related to how I pick stocks for swing trading.
I need to declare that when it comes to managing my money, I have a higher risk threshold than the average person. Over the years, I’ve enjoyed big wins and suffered abysmal losses. My confidence comes from years of experience, training, research, lessons, trade analysis, and self-examination. I’m finally in a place where I’m quite happy with my stocks and current strategy. I’m also happy accepting that if the markets change, I might have to adapt my strategy.
What I’m revealing here today is just to share my method among the curious, not to teach it or to say this is what you should do to make money. My only hope is that you’ll pick up some good ideas and know how to apply whatever is useful to your own decisions.
Just remember that there is no fail-proof way to invest, nor is there one way to make money from investing. Investing is just one aspect of personal finance, which is how you manage your money and make financial decisions. I feel that the other aspects related to personal finance — working, budgeting, managing debt, and saving — are just as important, if not more.
I’m going to break down my explanation into parts. Each part will be blogged separately over the next few weeks.
Part 1: Looking for Stocks
Objective: To find major stocks that have higher trading volume
I look for stocks that trade a lot in the TSX. I narrow the search process down by looking at the larger stocks in the TSX that are listed in the S&P/TSX 60 Index or the S&P/TSX Composite Index. If you click on those links, you can see the index’s stocks under ‘Constituents.’ If you don’t know what an index is, it means you haven’t read my book yet! You can still refer to the Terminology page for quick reference.
I like stocks that have the higher daily trading volume which means the number of shares bought and sold in a day. So with TSX stocks, I’d like them to trade at least 10K shares a day; the more the stock trades, the more interested I am in it. My TFSA is less funded than my other trading account, so I tend to look for Canadian stocks that are under $20, preferably under $10 so that I can buy more shares.
Rarely do I buy stocks that trade on the TSX Venture Exchange, but if it’s for stocks in a relatively new industry (like cannabis), then I’ll buy the from the venture if it meets all my requirements.
I use the amazing Screener feature on finviz.com to find US stocks. For free, you can customize different search requirements and save those settings. I’ve created different “presets” for finding current financial stocks, tech stocks, oil stocks, pharma, transports, etc., that suit my preferences.
The one common feature I use in all my searches is “Average Volume,” so I usually prefer US stocks that trade over 500K shares a day. Some people look for stocks that trade much more, some are okay with less than 500K. If I have too big a list, I’ll also add “Current Volume” to the search criteria and I’ll select over 1M shares because it means it’s currently trading a lot more than its average volume and something unusual could be going on with those stocks.
I usually look for US stocks that are over $5 in share price, mainly because the higher-priced stocks often, but not always, move more in price so I can make a decent profit in a shorter amount of time. I have more money available in my US trading account too, so I’m able to shoot for higher-priced stocks.