How to Pick a Stock in Share Market
How to Pick a Stock in Share Market
📚 Table of Contents
1. Introduction to Stock Picking
Stock picking is a strategic art and financial science. Choosing the right stock involves analysis, patience, and a well-defined approach based on your goals...
2. Key Rules Before Picking Any Stock
- Know Your Objective: Long-term investment or short-term trading?
- Avoid Herd Mentality: Make decisions based on data, not crowd opinion.
- Risk-Reward Ratio: Never risk more than you can afford to lose.
- Use Stop Loss: Always define exits to prevent big losses.
- Never Blindly Follow Tips: Do your own research.
3. Understanding Types of Investors
Investors: Long-term, fundamental analysis focused.
Traders: Short-term, depend on technical indicators and sentiment.
4. Fundamental Analysis
A. Financial Statements
- Income Statement – Revenue, net profit growth
- Balance Sheet – Asset vs. debt check
- Cash Flow – Sustainable cash generation
B. Key Ratios
| Ratio | Purpose | Ideal |
|---|---|---|
| P/E | Valuation | Lower than sector |
| ROE | Profitability | Above 15% |
| Debt-to-Equity | Leverage | Below 1 |
| Current Ratio | Liquidity | Above 1.5 |
C. Management & Moat
- Promoter holding > 50%
- No pledged shares
- Brand and business moat
D. Growth Potential
Look for consistent revenue and profit growth. Analyze future market potential, scalability, and innovation capacity.
5. Technical Analysis
A. Stock Charts
Candlestick charts show trends clearly. Use them with volume and support/resistance levels.
B. Indicators
- Moving Averages
- RSI – Overbought/oversold levels
- MACD – Trend changes
- Bollinger Bands – Volatility analysis
C. Patterns
- Bullish: Cup & Handle, Double Bottom
- Bearish: Head & Shoulders, Double Top
6. Qualitative Analysis
Assess brand value, customer loyalty, innovation, and leadership. Read annual reports and news to gauge soft factors.
7. Economic & Sector Analysis
Track macro factors like interest rates, inflation, fiscal policy, and international events. Study sectoral performance and government policies affecting the business.
8. Risk Management Principles
- Use stop-loss orders
- Diversify investments
- Position sizing based on conviction
9. Building a Diversified Portfolio
| Sector | Suggested Allocation |
|---|---|
| Banking/Finance | 25% |
| IT/Tech | 15% |
| Healthcare/Pharma | 15% |
| FMCG | 20% |
| Infra/Auto | 25% |
10. Case Study: Tata Elxsi
- ROE > 25%, debt-free, profit growth
- Support on 200 EMA, MACD turning bullish
- Strong demand from EV/automation sectors
11. Common Mistakes to Avoid
- Following random tips
- Emotional trading (FOMO or panic)
- No exit plan
- Averaging poor-quality stocks
12. Final Thoughts
Picking a stock is not gambling—it’s a systematic approach based on analysis, logic, and strategy. Stick to rules, use data, and build a diversified portfolio for consistent success.
📋 Bonus: Quick Checklist
| Criteria | Ideal Condition |
|---|---|
| ROE | >15% |
| Debt/Equity | <1 |
| Revenue Growth | >10% CAGR |
| Net Margin | >10% |
| Promoter Holding | >50% |
| RSI | 30–60 |
| Volume | Increasing |
About C K Mehta
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