Let’s face it. New Year’s resolutions often start with fixing last year’s unresolved issues. And if pledging to begin learning how to invest in stocks — particularly, how to invest in stocks for beginners — is one of your goals for 2022, start with an honest and realistic look at what you want to achieve and how you’ve done so far.
With the coronavirus crash and rebound, plus ongoing concerns about Covid variants and inflation, the ever-present emotions of hope, fear and greed have the potential to wreak havoc on investor psychology. That’s why it is crucial for both beginning investors and seasoned pros to keep in mind the fundamentals of how to invest in stocks in 2022 and beyond.
To that end, let’s take a look at three factors that will streamline your research and improve your stock picks: stock ratings, a simple routine and understanding the concept of support and resistance.
How To Invest In Stocks: Get Pass Or Fail Stock Ratings Using Stock Screens
In MarketSmith, the IBD database covers over 9,000 stocks. How can you reduce that to a more manageable number of the best stocks to buy and watch? Two tools will quickly streamline your search: IBD Stock Checkup and IBD Stock Screener.
With Stock Checkup, you instantly get pass, neutral or fail stock ratings for any publicly traded company. Based on the CAN SLIM Investing System and over 130 years of stock market history, these unbiased, computer-generated ratings give you a holistic look at the fundamental and technical health of each company and its stock.
For example, the Composite Rating reveals how your ideas stack up against all other stocks. Take Nvidia (NVDA). It currently earns a 99 Composite Rating, meaning it is outperforming 99% of all stocks in terms of the most important stock-picking traits.
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Stock Checkup also gives you a grade for earnings and sales growth, industry group rank and other key metrics— relative to all other stocks on the market. It’s an easy way to see if your stock is a leader or a laggard.
Using the stock screener, you can also instantly sort through thousands of stocks to identify only those that fit your own custom criteria. Looking for IPOs that have 25% or greater earnings and sales growth? Want to find stocks on IBD stock lists like the IBD 50 that expect a 50% or greater EPS spike in their next earnings report? The stock screener enables you to do that and more.
Use This Simple 3-Step Routine To Understand How To Start Investing In Stocks
Beginning investors have many questions when trying to understand how to invest in stocks. One common mistake is to focus solely on the individual company, ignoring general stock market trends. Another is to focus exclusively on a company’s fundamentals (e.g., earnings and sales growth) and ignore the technicals (e.g., price and volume action in the stock) — or vice versa.
In tandem with the stock ratings and stock lists noted above, here is a simple three-step routine that takes into account all aspects of both market trends and the health of each company and its stock.
Using this routine, both long-time and beginning investors can use The Big Picture and Market Pulse to see which of three possible stages the market is in: uptrend, uptrend under pressure, or market correction. Next, investors can discover stocks to watch using stock lists or the stock screener. Finally, you can evaluate your stock ideas using the stock ratings in Stock Checkup.
Even if you’re just starting on your journey to learn how to invest in stocks, don’t be intimidated. This simple process covers the key factors. And the more you use it, the quicker and more effective it becomes.
Support And Resistance: The Key To Understanding When To Buy, Sell Or Hold
A primary factor in learning how to invest in stocks successfully is learning how to read stock charts. And essential to that is learning the concepts of support and resistance. While this is the technical side of investing, it is the surest way to learning how to manage risk and keep the odds in your favor.
Think of support and resistance in terms of floors and ceilings. After a stock makes a nice climb, at some point, it will retreat, hopefully establishing a floor of support. Next, the stock will bounce off that floor and eventually bump its head against a ceiling of resistance.
That point of resistance becomes a testing ground, forming the potential buy point. If the stock has the strength to punch through that prior area of resistance, it flashes what we call a breakout.
Especially for beginning investors, the key is to remain patient and wait for a stock to clear that point of resistance (AKA, buy point) and break out. By waiting for a stock to do that and making sure the stock market indexes are in an uptrend, you’re putting the odds of success substantially in your favor.
Timeless Lessons On How To Invest From Nvidia For 2022 And Beyond
Since a breakout in March 2016, NVDA stock has repeated this process multiple times. It’s had a phenomenal run, albeit while encountering changes in market direction, as well as floors of support and ceilings of resistance.
Such is the cycle of both the stock market indexes and individual stocks.
So if you’re New Year’s resolution is to learn how to invest in stocks, resolve to understand the stock ratings, routines and concepts of support and resistance outlined here. It’s a sound way to start investing in stocks with the odds soundly in your favor.
Follow Matthew Galgani on Twitter at @IBD_MGalgani.
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