Many investors, both large and small, nowadays are increasingly asking themselves which are the securities most convenient to buy right now or for a future investment.
Of course we are not just talking about equities but about any financial instrument negotiable in world markets and exchanges.
If you are also wondering what are the best stocks to buy right now for short term trading or long term investment, you ended up in the right place.
In this article we will try to give you some useful tips and tools to find out for yourself what are the best opportunities to work on.
How to choose the stocks to buy
When it comes to buying stocks, it is important first of all to be clear what the entry price must be, that is, the purchase or short sale price of the share, the price or the prices at which we intend to partially or totally liquidate our position and finally, but certainly not in importance, the price reached which we must immediately leave our position even if with a small loss.
The latter condition in fact allows us to protect profits and to limit the damages due to the inevitable, albeit controlled, losses that trading and investments entail.
Therefore, one should not be afraid of losing money when evaluating the securities to be purchased, since such losses represent basically a simple operating cost. As said, the important thing is to be aware of it and above all to adopt the set of measures necessary to keep them under control.
Learn more about the topic: the importance of starting capital in trading.
In the following we will expose a series of simple techniques to make the choice of the securities to be purchased both through technical analysis and fundamental analysis considerations, without however pretending to exhaust such a complex topic in a single article.
Selection through technical analysis
When we as investors or traders want to properly evaluate our securities to be purchased, it is necessary to refer to theis, thetechnical analysis,analysis thatthat allows us to understand through the price structure itself whether the security it is destined to rise, fall, or remain stable within a lateral phase, that is, a phase where prices literally remain “caged” within some predefined levels of support and resistance.
The winning key to purchasing securities intended to create profits is to develop the ability to predict, at least in the short term, what the tool is intended to do.
In this regard, there are a great variety of tools that allow us to understand with fairly good approximation whether a security to be purchased is destined to move in the direction we hypothesized so as to be able to take advantage of it, for example, the use of indicators and oscillators, through which can be defined as the so-called overbought and oversold areas of a security, then estimate one above or below evaluation.
Now let’s take a practical example on the share Apple through one of our favorite indicators, the commodity channel index.
By viewing this formidable price indicator on a stock chart, it is possible to define two bands within the indicator graph: a first band located below the -100 line, and a second band located above the +100 line.
These two bands define the areas of hyper sale and hyper purchase respectively.
A very simple way to be able to use this indicator is to wait for the upward return from the -100 line (the hyper sale area) so as to define a good purchase setup.
However, the use of indicators (and also of oscillators) suffers from a problem, that is, the generation of numerous false signals during the most sustained trend phases (as in this case).
In this case, therefore, to greatly increase the probability of success of the operation, the indicator could be exploited at the same time as a moving average which highlights the underlying bullish trend.
The indicator will thus serve us to wait for the end of the correction (or pullback) by providing us with an input signal at the first bullish cross with the -100 line.
Selection through fundamental analysis
An alternative approach to that followed through the use of technical analysis (seen in the previous point) consists in selecting the title throughfundamental analysis.
We immediately specify that the fundamental analysis represents a complex subject often addressed to specialists in the sector and experts in corporate finance, however by making use of some simple tools made available by some platforms, for example Fineco, it is possible to obtain important information to have a adequate overview of potential opportunities in terms of securities to be purchased.
In the image below, the platform Fineco shows a map of the securities where it is possible to immediately make a comparison between the percentage dividend offered by a company whose securities are expected to be purchased and the profit price ratio (on the horizontal axis), while the size of the circle simply indicates there capitalization marketof the company.
Therefore, the larger circles represent the most capitalized companies, the smaller and smaller circles instead represent the companies with the smallest market capitalization.
The percentage dividend is certainly a good motivation to buy the securities of a company since, on a periodic basis, upon detachment of the dividends, it will be possible to be credited to the account the portion pertaining to it naturally perceived as a function of the capital invested.
On the abscissa axis (horizontal), as mentioned, we find the price-earnings ratio; without going into too much detail about this fundamental indicator, let’s just say that a lower price-earnings (therefore on the left side of the map) corresponds to an underestimation of the company and vice versa.
It will therefore be reasonable to invest in those securities whose company is currently undervalued and therefore with a relatively low price-earnings ratio!
Of course, this article does not claim to address the complex issue of investments through a purely fundamental approach as this is not within the scope of the article itself.
Let’s just say that the one just seen is one of the possible ways to be able to carry out an evaluation, especially when the securities to be purchased must be kept in the portfolio for medium-long periods (3 – 5 years).
Finally, we point out another strong limit of the fundamental analysis (of which the technical analysis does not suffer), namely the total absence of the timing and the price level at which you enter the market, make profits or liquidate the position in case of loss .
Securities to be purchased: diversification
When the question arises as to which securities to buy to make an equity investment in the financial markets, there is no more important rule to learn than portfolio diversification.
It would be pure folly to invest a large part or even all of one’s available capital on the shares of a single company since, in the event that the share price should go badly for a long time or worse than the company for which we purchased the title goes bankrupt, we will end up with a large wallet at a loss!
It is not really the wisest choice to make.
In reality, portfolio diversification, carried out by purchasing not just one, but several securities, also serves to balance any losses that the portfolio makes with gains.
If you want to know more about diversification, we recommend you visit our article dedicated to the following link.
Asset management with equity securities
After carrying out a careful analysis of the securities and evaluating various alternatives, above all to create an efficient portfolio diversification, it is also necessary to establish what is the percentage rate of our available capital to be allocated to each financial instrument.
Generally speaking, each company in the portfolio should never have a percentage weight on the entire portfolio greater than 5%. What is said of course depends on the personal degree of exposure to risk.