Having the right strategy for investment is extremely important if you are looking to stay in the long run. Playing the stock market without a strategy is often thought among investors as a deadly move, as it can result in catastrophic losses with huge repercussions. One needs to have a strategy in mind always, even if it’s a wrong one since your strategy improves over time.

We at William O’ Neil believe that there are 3 basic steps that come handy when taking new positions:

Step 1: Proper Fundamental Analysis of Stocks

It is the fundamental strength of a stock that fuels it’s rally. You, as an investor, need to pay attention to the company’s growth trends, their return on equities, and profit margins to get a clear picture of the company’s performance.

Investors can gauge the appropriate use of shareholder’s equity by looking at the fundamentals. These stocks would ideally be those that meet the CANSLIM attributes such as strong earnings and sales growth, growing institutional sponsorships, and the rising demand for the stock.

Step 2: Consider Market Direction

The stock market prices are volatile, but the market direction provides us with a very velar insight as to where the prices will be heading for. Through our extensive research, we have found out that 75% of the stocks follow the market direction, i.e. if the market is in a downtrend, the stocks will also tend to drop their prices. On the other hand, if the market is in an uptrend, it signals the investor to look forward to new investing prospects.

Step 3: Reaping optimal returns

You have now successfully identified the fundamentals and know the market directions pretty well, but it is also important for you to find the right time to purchase/sell an investment. To find this, you need to perform a technical analysis of your stock and determine the perfect point to perform a transaction to maximize your investment gains. The CANSLIM model helps you in identifying the key factors involved.

The right time to buy any quality stock would be when it breaks out from a sound base pattern such as cup-with-handle, double bottom, or a flat base. On the day a stock breaks out, the trading volume should increase at least 50% above its 50-day average volume.

On the other hand, the right time to sell a stock would be when it drops below 8% of its purchase point. You can refer to the in-depth analysis of when to sell stock from here.

To get more share market tips, visit www.marketsmithindia.com. We offer various insights to these stocks which will help you in making good sound investments.

Author's Bio: 

For more than 50 years, our founder William J. O'Neil has been educating U.S. investors on the proven investing method he created. His investing classic "How to Make Money in Stocks" has sold more than 2 million copies worldwide. Now, for the first time, we're expanding to India to offer a tool focused on Indian stocks. Our goal, however, remains the same: To provide individual investors with the knowledge and information they need to achieve success in their investments and in their financial lives.