How to Create a Stock List

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Buy Strength and Sell Weakness
Buy Strength and Sell Weakness (Image: http://www.sxc.hu/photo/182457)

Creating a stock list is one of the key points of intelligent strategic investing. Develop your list based on your investment strategy. You can formulate your list from technical and fundamental analysis, which is a relatively easy activity using free online tools.

Decide whether to construct a list from technical analysis or fundamental analysis. Technical analysis uses price and volume information to create analytical tools. Fundamental analysis uses supply and demand and profitability ratios for analysis. Consider choosing stocks with fundamental analysis and entry and exit points with technical analysis.

Use the Yahoo stock screen (or other similar tool) to analyze stocks from a variety of measures. First, address minimum requirements for investing. Adopt a minimum number of outstanding shares and a minimum stock price (do not use less than $10). Add minimum levels of trading volume to ensure liquidity. Consider a minimum and maximum market capitalization (shares outstanding times current stock price).

Use financial screens to find measures of profitability. Profitability measures include return on assets, return on invested equity and earnings per share. Create a list of relative value by screening stocks by price-to-earnings ratios.

Collect all stocks meeting muster into a spreadsheet. Each stock should rank highly by most statistical measures, not just any one measure. Use the Edgar database provided by the Securities and Exchange Commission (see Resources, below) and review recent business financial and management discussions. From this you should be able to narrow your stock list. Do not choose more than 20 percent of your investment from the same industry or business sector. Do not invest more than 5 percent in any one stock.

Use a stock screen to find whether your chosen stocks are trading above their 200-day moving average. Buy stocks when they are above the 50-day and 200-day moving average. Sell stocks when they drop below their 200-day moving average. Always use protective stops to prevent small losses from becoming large losses.

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