New stock picking systems are created all of the time. There are hundreds of stock picking variations just like there are thousands of stocks to pick.
Yet, you will find that most stock picking system are not worth considering.
There are three fundamental mistakes that you will learn about in this article. Knowing this will help you avoid what is wrong about most stock picking systems and how to find the ones that work.
They are:
1) Choosing a system that is too narrow.
2) Choosing a system that is too broad.
3) Choosing a system that is too inflexible.
Mistake #1: Picking a System that is too narrow
Some systems will base their entire strategy on just technical indicators, multi-day candlestick patterns, or some form of divergence. The problem is that all of these systems are only using two factors: price and volume.
Imagine if you were about to invest in a horse that competed in racing. Would you be satisfied with only the weight and speed of the horse? No matter how you graphed those two variables, they are only two criteria. You should also be interested in the breed of the animal, the competition it was racing against, the jockey’s qualifications, and the horse’s age, to name just a few important details.
Stocks systems that are too narrow do not screen for overall market conditions, industry type, company specifics such as profitability, and much more. You need to take in the factors that matters as investing is more than finding a magical pattern that you hope will be like Midas’s touch. It takes expertise and common sense.
Mistake #2: Picking a System that is too broad
A stock system should not be too broad in its scope. Many well intentioned professionals give vague tips and broad guidelines to follow. Why? Most are afraid of being wrong. You cannot be right all the time but this is exactly what they may try to do. By giving too many choices they always leave themselves a back-door to rationalize, after the fact, that they were still right.
You need to covers many areas, but also recognize the need to give precise signals to buy and sell. Is it right all the time? Of course not, but you also do not need to be to make amazing gains. You merely need to know the secret of riding the profits as long as possible while minimizing your losses and cutting them short.
At the end of the day you want an expert opinion that is clear and precise. That is what you get if you find a system that is neither too narrow nor too broad.
Mistake #3: Picking System that is too inflexible
You will find people selling you software that will do all of thinking and stock trading for you. The problem is that the unpredictability of the stock market makes it almost impossible to know what the future of the stock market will be.
As well, all investors are different. Your system should be able to conform to your ideologies and values and not the other way around.
You need to ask whether you are into high reward with higher risk. Do you wish to buy and hold winning stocks for a longer time period and squeeze each last cent from it and only trading a number of times per year? Do you like to trade the best of the gold stocks, or high tech, or some other industry?
The best system takes the best of the stock market and fits it to your goals, comfort levels, and style.
The Solution is to Ask the Right Questions
When it comes to picking stocks you need a system, and you need a system that avoids the three mistakes. The best option is to find a stock picking system that provides to you the control and precision that you need to win the investment game.
I have published a stock picking system called The Stock Options Course that teaches you the essential skills to invest into the equities market. It will help you avoid the three mistakes mentioned in this article.