Picking the Right Stock Picking System

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.

This article will tell you what is wrong with most stock picking systems and what to look for in a system that works. There are basically three fundamental mistakes that need to be avoided.

They are:

1) Picking a system that is too narrow.

2) Choosing a system that is too broad.

3) Adopting a system that is too inflexible.

Mistake #1: Picking a System that is too narrow

Some stock picking systems will base their entire strategy on two technical indicators: 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.

Most stock systems do not factor in anything but price movement and volume. These systems 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 we investing is more than finding a magical pattern that you hope will be like Midas’s touch. Finding the right stock and timing your buy and sells 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.

By focusing on the precise signals to buy and sell a stock, you can avoid the mistake of being too broad in your focus. You will lose money and make mistakes, but that’s okay. Everybody makes these mistakes. The goal is to be consistent in your stock trading. Don’t chase amazing dreams, but be realistic and invest wisely and prudently.

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

There are lots of stock picking systems that are automated pieces of software. You will be told that you can leave these robo-traders running in the background to make you money. As absurd and appealing that may be, what happens when the market changes? Will your rigid piece of software change with it? Stock trading is not just a science; it is also an art that needs a human touch.

You have to remember that your investing philosophy will be different than other investors. You need to find a system that conforms to your investing philosophy 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

To get the control and precision you need to win the investment game, you need to find a system that avoids the three mistakes.

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.

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