I had this question from a reader:
How do I find candidates to trade and decide which strategies to adopt?
I recommend choosing strategy first. Candidates next.
You want to know what to trade and then which how to select candidates? What else is there? Except for risk management, that is 100% of the game. No one can do this for you.
Most brokers provide free scanning software that allows you to find stocks that suit your criteria. But what are your criteria and how are you going to chose them? Earnings growth? Cash flow acceleration? Increase in revenue?
Will you pick a stock or an industry? Then how will you find best stock in that industry? Maybe you are looking for stocks to short?
How can you rate the company’s management? Where are you going to find information that gives you an idea about how the company is really performing? Prepared to read all annual (and all other) reports. Can you interpret the results of your readings? Can you understand all the footnotes to the financial tables? How in the world can you (or anyone) know enough about a company to buy its shares?
The answer beats the hell out of me. I have no clue.
There are too many questions
I don’t see how anyone can help you.
Let’s assume you want some long-term investments. That may be holding the stocks (or deep ITM calls) unfledged. It could include writing OTM covered calls.
Then you also want a trading portfolio, using options. How much of your total should this be? Not too large until you become convinced (and there is always that chance that that may be ‘never;) that you can do far better with options than with long-term holdings.
Then you can speculate with a portion, but that’s not for me and I do not know if it’s for you.
Do broker’s tools help or do they represent a trap? Good question. Depends on which tools you mean.
a) I trust scanners to scan for candidates that meet your criteria.
Paper-trading tools are innocuous (except for one broker). Most give such poor fills that it encourages no one. However, that un-named broker gives good fills in practice accounts – and I believe that is to convince newbies that trading is much easier than it seems. Those good fills entice traders. I’m convinced of that.
No one can pick candidates for you. Do you like nonvolatile stocks that pay big dividends? Do you you want to be long technology or biotech? Do you even want to be long, or do you want to be carefuller hedged? Do you want to trade individual stocks or an index/ Are you willing to take the chance that an individual stock may issue a bad news alert.
Do you want to be neutral, or even short the market?
With all those questions and many, many more, who can make recommendations for you? The obvious answer is the correct answer. No one but you.
You must find your own underlying or be able to explain in detail to someone else just what you are looking for and then trust them to give you a bona fide list.
And then when you find these stocks, what are you going do do with them? Buy and Hold? Collar? Write ATM or OTM covered calls?
Are you going to buy the shares, or buy call spreads? Perhaps sell OTM put spreads. Are you going to seek limited or unlimited returns? Is it worth all that research to seek limited gains? How much risk are you wiling to take. can you afford a market crash?
Those are merely the questions,. Next you must supply the answers and decide which are most important.
I hope you can find the path, It is difficult. Most investors just do whatever is in front of their noses and hope for the best. That is not wise.
Pick a broad based index or ETF. Trade small. Choose a strategy that you believe you understand. Pay close attention to the trade and adjust if necessary. Make a trade plan. Continue to trade other strategies in a virtual account In six months you will have a lot of experience with a couple of strategies and may have even discovered a candidate or two.
Then it’s time to get started. Small size and grow size very slowing Prove you can make money before expanding. Do nto believe you can do it until after you have proved that it can be done (by you). Have patience. Many questions. Many answers. Just begin slowly and do your research.