5 Things You Need to Know to Find the Best Shares to Buy Online

By  //  June 28, 2021

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Many people like to think they are adept at buying and selling shares. But the truth is, finding profitable trades is not easy, and it’s certainly not down to luck. It takes a good deal of knowledge and patience to buy shares profitably online.

Before you invest in a broker account and rush into your first few trades, make sure you do your homework. Because only then can you expect to make more money gains than losses in your trading activity.

Here are five key things you need to be aware of, and you should start looking now.

Financial indicators

Whether you have read an analyst’s advice, seen a share tip in the media, or arrived at a stock because of personal preference, you must diligently check the figures. All publicly listed companies publish full annual reports and quarterly updates that include a minefield of information.

Yes, it’s easy to look at the current and forecast revenues and the potential profits, and it’s easy to work out the market capitalization (what the company is worth), but if you hope to find the best shares to buy for the long term, dig deeper for extra information:

Price-to-earnings (P/E)

Essentially, this is the current market price compared to the cumulative earnings of the previous four quarters. You can then compare this figure to similar companies in stature, but especially in the same sector. If one has a lower P/E but is growing as a business, then this is a good indicator that you might buy.

Dividends

If you are using a broker to actually buy shares, you will be open to receive dividends. Regardless of future stock price changes, you will receive a dividend for each share that you own (unless the company makes a loss or declares no dividend as it needs the cash elsewhere). Your best shares might, therefore, be those that traditionally pay out healthy and stable dividends. Look at the company reports for previous years to see how much has been paid in dividends before.

Price Movements

Many traders, including those who do so as amateurs, will execute trades on the back of price movements rather than anything like company performance. This does not mean they look for a rising share price and get on board on the assumption the price will keep going up. It’s more involved than that.

A trader will go through a lot of technical price analysis, using charts and software to identify patterns of price movements that might be indicative of what will happen next. This is more of a short-term investment strategy since you can easily capitalize on short-term price movements in this way.

Good online brokers will have a suite of graphs and free tools that you can use to plot historical and likely price movements, be it in stocks, indices, currencies, cryptocurrency like Bitcoin, or commodities.

While jumping on a good share deal in this way is all well and good, it’s equally important to know when to get out, and often you should set this in advance. You can put in a stop-loss so that you exit a trade automatically if the price falls to a certain level. And you can select to exit if the price rises to a set number. The reasoning being your analysis predicts the price will only rise to a certain point, and you wish to take as much in profit as you can before it falls again.

Company News and Events

While your analysis and research will get you off on the right foot, nothing can rip it all up faster than company news and events, so keep an eye on financial sites like Bloomberg. For example, let’s say that early in 2020, you had done some analysis on American Airlines (see chart), where the share price over the previous two years had fallen steadily from around $58 to $29. But you reasoned the price was bottoming out and likely to begin recovery.

Then the COVID pandemic hit, and the American Airlines stock plunged to $9 within a month. We’re not saying you could have forecast that, but you had to be across the news to understand these were turbulent times for the airline industry, and you might be best to board another sector. Equally, as the price bottomed out in about May of 2020, that might have been the time to buy, as American Airlines began opening routes again. It’s price today is closer to $23.

In general, however, it’s best to avoid trading on the news, since some stock prices will already have taken news into account, and the movement may not be a high as you hoped. On the flip side, breaking news might produce wild swings that can go against you fast.

Find a Good Broker

While we have talked about research and news, let’s take a moment to stress how important it is to find a good broker. There are several things to look out for, all of which will help your share dealing:

■ Good app and software

■ Big range of markets

■ Excellent expert analysis and content

■ Free technical analysis software

■ Safe and secure

■ Fast deposit and withdrawals – and choice of payment methods

What’s Your Goal?

But perhaps the most important thing to know about getting the best shares is first asking yourself why you are doing it. Are you serious about making money, and if so, what is your target? Are you looking to make a certain amount in the short, medium, and long term?

Once you have these answers – and it’s best to note them all down as you form a trading plan – then you can begin to map out your trading strategy. Only then can you begin to look at indicators, price movements, and the like with any confidence that you are following your plan.