Tuesday, January 3, 2012

More on Stock Screens

Stock screens and back testing are invaluable tools that enable you to make great stock picks. For example you may run a screen for stocks with the lowest pe's. This is a great place to start, but it should only be the beginning.

I think its wise to run the results through at least one other screen and then when that is done, have them pass certain other criteria, such as liquidity, for one.

A hypothetical situation that best exemplifies what I am talking about maybe to take the following steps:

1. run a screen for stocks with the lowest pes
2. then run a screen for lowest price to book with the same stocks that you came up with using the low pe screen
3. then choose the stocks that are trading at least 100k shares on average per day.

At this point, pick the best 5 or 6 stocks.

4. then dig a little further and read a little about each company; after doing this, there should definitely be one or 2 stocks that you will feel really good about.
5. the final step, is to do a paper trade with these stocks and see what happens. I can not empahasize how important this final step is. It is an absolute... do not skip this step.

A final note, when I first started investing, I read similar advice and ignored it and it cost me tens of thousands of dollars, save yourself the pain-take a little time to do the research and make yourself tens of thousands instead of losing it.

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