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How to Pick Investment Stocks for the Long Term

Investing in stocks for the long term involves careful analysis and strategy. Two primary methods used by investors are technical analysis and quantitative analysis. Let’s explore how these approaches can be applied using examples from the Indian stock market, and see how to build a sophisticated technical model for a stock scanner.

Technical Analysis

Technical analysis involves studying past market data, primarily price and volume, to predict future price movements. Here’s how you can perform technical analysis:

1. Identify Trends: Determine whether the stock is in an uptrend or downtrend. For example, let’s look at Tata Consultancy Services (TCS). By analyzing the historical price data, you can see that TCS has shown a consistent uptrend over the past five years.
2. Use Moving Averages: Moving averages help smooth out price data to identify the direction of the trend. A commonly used metric is the 50-day and 200-day moving average. For instance, if the 50-day moving average of Infosys crosses above its 200-day moving average, it’s known as a “golden cross,” which is a bullish signal.
3. Volume Analysis: High trading volumes often precede significant price movements. For example, a sudden spike in the trading volume of Reliance Industries can indicate an upcoming price change.
4. Support and Resistance Levels: These are price levels where a stock consistently tends to stop and reverse. Identifying these levels in stocks like HDFC Bank can provide clues on when to buy or sell.

For more insights and live examples, you can refer to MoneyControl or NSE India.

Quantitative Analysis

Quantitative analysis involves using mathematical models and statistical techniques to evaluate stocks. Here’s a step-by-step guide:

1. Fundamental Ratios: Look at fundamental ratios such as the Price-to-Earnings (P/E) ratio, Debt-to-Equity ratio, and Return on Equity (ROE). For instance, HDFC has a P/E ratio that consistently indicates its valuation relative to earnings.
2. Earnings Growth: Analyze the earnings growth of companies over the past five years. For example, Asian Paints has shown a steady increase in earnings, making it a strong candidate for long-term investment.
3. Dividends: Consider stocks with a strong history of dividend payouts. Indian Oil Corporation is known for its consistent dividend payments, which can be a good indicator of financial health and profitability.
4. Backtesting Models: Create backtesting models to simulate how your strategy would have performed in the past. Use historical data of stocks like Bajaj Finance to test your investment strategy’s viability.

For detailed quantitative data and stock screener tools, visit Screener.in or Tickertape.

If all this seems too much to engage yourself into you can always use ALGO SCANNERS to do the job for you. Here is the list of few algo scanner models for your reference, Do visit them for more Insight:

• Model 1
• Model 2
• Model 3
• Model 4
• Model 5

By combining technical and quantitative analysis, you can make informed decisions to pick stocks that are likely to perform well in the long term. Always remember to diversify your portfolio and continuously monitor market conditions.

For further learning and real-time data, you can explore TradingView and Yahoo Finance.

Disclaimer: Investing in stocks involves risks, and it is important to conduct your own research and consult with a financial advisor before making investment decisions. The examples provided are for educational purposes only and do not constitute financial advice. Past performance is not indicative of future results