2 Questions to Ask Before Buying any Stock or Option / Stock selection strategies, What stocks to buy, Stocks for beginners, What stocks should I buy, What stocks should I invest in, stock market 101 welcome to looking at the markets with
David Moadel today we're going to talk about a couple of questions in fact two
questions that I ask before buying any stock or call option know what to look
for
before taking a long position
there are a number of ways to take a long or bullish position on a stock or
ETF
one way is simply to buy the stock or ETF while another way is to buy call
options on the stock or ETF no matter how you choose to take a long position
you first need to know what to look for in that stock or ETF
the question is do you know what to look for
I like to buy a temporary dip within an overall uptrend therefore i look at the
chart and I asked two questions
is the patient generally healthy and does the patient have a cold
allow me to translate this into market terms is the patient generally healthy
means is the stock or ETF in a general overall long-term uptrend and does the
patient have a cold means is there a dip or short-term oversold condition that
appears to be temporary and therefore viable
after all we want to buy the dip with confidence that the stock or ETF will
recover fairly quickly
in medical terms we're looking for a patient that has the sniffles
not a fatal disease as a swing trader
I tend to check the daily charts for this to help me answer question one is
the patient generally healthy
I check the 200-day simple moving average or SMA and the 50 day simple
moving average
I want to see both of them sloping upward
especially the 200-day simple moving average since it gives a fairly reliable
indication of the overall uptrend to help me answer question - does the
patient have a cold
I check overbought oversold indicators such as RSI the 14 . RSI and bollinger
bands on their standard settings
i'm looking for a short term oversold conditions here
so here's example number one
and in this case the patient is healthy overall and caught a cold but will
probably recover and so this is
PNRA which is panera bread so well-known restaurant company there
I've eaten there myself a number of times and so I believe in the company
and also i like the overall trend
look at the 200-day simple moving average is trending upward and the 50
day simple moving average is overall trending upward and yet it's near it
closed right near the bottom
Bollinger Band indicating that it is perhaps
short-term oversold so the patient caught a cold
yes but that doesn't mean that the patient is dying or fatally you know has
a fatal illness or anything like that because overall the trend is up
and so the patient will probably recover from this cold
so to speak and if we look at the RSI it's not quite an oversold territory but
it could certainly get there
so this could either be purchased
now or it could at least be on our watch list
on the other hand here's example number two in this case the patient in my
opinion is not healthy and you do not want to catch whatever disease
this patient has so even though this has dips in it
I don't believe that these are necessarily viable tips
meaning i don't think you want to buy these tips because let's look at the
overall trend as indicated by the 200-day moving average and this
the simple moving average and the 50 day simple moving average both trending
downward so it's pretty clear that the patient is not healthy here and
personally I wouldn't touch this stock at least at this point in time
so if you're not giving your stocks or ETFs a check-up before taking a long
position then the prognosis won't be good
keep your account healthy by asking the two crucial questions before you go
along if you'd like more help with this or with options
finance trading or investing in general please feel free to contact me
I'm here to help you my email address is David Modell @ gmail.com thanks a lot
and i'll talk to you soon