3 Steps To Stock-Picking Success

With thousands of stocks, mutual funds and exchange traded funds to choose from, it may seem like a daunting task to separate the wheat from the chaff.nnDon't let the shear numbers discourage you.nnBy applying three simple steps, you'll quickly have a small list of strong performing stocks... ready to work for you, putting money in your pocket!nnFirst... you need to identify which stock sectors are performing better relative to the broad market.nnThis is called Relative Performance Analysis.nnFor example, you might compare Healthcare, Oil, Computer and Retail sectors against the Standard and Poor's 500 Index.nnStart by comparing the last three months of price activity. This is a significant time period for identifying emerging trends.nnYou'll want to select sectors and indices that are positioned well above the broad market... those in a strong uptrend.nnThe higher the percentage reading, the better the index is performing.nnThere are many Web sites to help you do this quickly and efficiently. For instance, StockCharts.com has a section called PerfCharts which already has predefined comparisons ready to go.nnAdditionally, you can customize your analysis by entering your own index, sector or stock symbols. Take the time to familiarize yourself with this powerful stock analyzing tool. You'll be using it often.nnSecond... take the strongest sector and compare it against the component stocks that make up the sector.nnFor example, if the AMEX Morgan Stanley Healthcare Providers Index (RXH) is performing well, compare it against LifePoint Hospitals (LPNT), Universal Health Services (UHS), Tenet Healthcare (THC) and Triad Hospitals (TRI)... all component stocks of the index.nnSome component stocks will out-perform their index. Others will not.nnTake the strongest stocks (highest percentage) and add them to your list.nnIf the PHLX Oil Service Sector (OSX) was another strong performer, take the component stocks and compare them to the index itself. Then, add the best stocks to your list.nnA list of component stocks can be found at each exchange that sponsors a sector or index. Some exchange Web sites include: amex.com, phlx.com and cboe.com.nnThird... once you have compiled a short list of stocks you'll want to apply some simple technical indicators in order to determine appropriate entry points and price target objectives.nnYou might use Elliott Wave, Fibonacci or candlestick analysis to help you make your decision.nnNow, it's time to pull the trigger... make the trade and let the profits run.nnYou'll find relative performance analysis a choice addition to your investment toolbox.nnLet it be your starting point and basis for all your trading decisions.nnGood trading!