Stock Selection Criteria

There are several profitable ways to trade stocks. None works 100% of the time. There are different stock groups. None consistently outperforms the others. Each method and each group requires its own set of selection criteria. There is no magic parameter that will let you consistently pull winners out of a hat. The best you can do is to develop a set of criteria consistent with your method, style and group and adjust it as necessary.

Specialize

The market is too big for anyone to be equally good at everything. Pick an area and get really good at it: breakouts, biotechs, shorts, daytrading...

Make Sure Your Parameters are Vital and Current

There are literally hundreds of stock parameters. No one stock can meet them all. Using too many parameters will simply eliminate most stocks. Besides, you don't have all day to sift through pages of data. The key is to have a shortcut to big winners. If most recent winners share a common parameter, it's an important one. If a parameter will disqualify a current winner, ditch the parameter, not the stock. For example, I have never seen a winner that failed to advance because of a low ROE (return on equity).

Market preferences change over time. Keep your parameters current by staying with what's working in the market right now and discarding those that no longer apply.

Relative Scale

Parameters are not equal, and their relative weight may change. The key is to know what's more important right now and give it more weight. For example, a stock with an earnings growth rate of 50% and a P/E of 50 may at one point be considered the best growth stock and overvalued at another point so the question becomes: what's more important right now: a high growth rate or a high P/E?

Do Not Mix and Match or Jump

Mixing parameters applicable to different groups doesn't work. For example, most biotechs are unprofitable so using a p/e ratio will eliminate most of them; a turnaround stock may have a negative net worth (no shareholder equity) or a very high p/e due to recent losses; a growth stock with a low p/e may not be a bargain but a sign of trouble.

Some people jump from one method to the next if it fails to produce immediate results. The market favors different stock groups at different times. If your parameters are valid, give them time to work.