Lots of people have theories on how to buys stocks for a profit. I am no different. I have a large number of approaches I use for my personal investing in the Stock Market. One of my favorite methods is called, "bottom fishing."  Everyone who invests regularly in stocks knows what bottom fishing means. However, if you don't know what I am talking about, then let me tell you briefly what it is. Bottom fishing is act of investing in stocks that have fallen in value to such a point that they appear to be cheap. Simply stated, bottom fishing is value investing. The thing you ought to know, however, is that bottom fishing can be awfully dangerous. In fact, a lot of investors new to investing often fall into the trap of thinking that if they can just pick the cheapest stocks to invest in, they will somehow pick winners. Nothing could be further from the truth.

In order to be successful in the art of bottom fishing, an investor has to have a solid method for picking well qualified stocks. So exactly how does one go about this process of finding the right stocks to consider for a trade? The method I am going to share with you in this article has worked for me over and over again. In almost every case, when I have used this approach to my bottom fishing investing, I have made money. Interested? Fine. Here we go.

The first step in my method for picking qualified stocks for bottom fishing has to do with value. I look for good to great quality companies, whose earnings have missed Wall Street expectations in the previous quarter. Whenever any company on Wall Street misses its expected projected earnings, its bottom line profit, or its expected top line income, the stock usually begins to drop like a rock. When I look at companies that have missed their expected profits or earnings, I want to look for a company that has only slightly missed its top line or bottom line projected earnings. I also look for a company that has missed its projected profit expectations by a minimal amount. 

After I have found a few candidates that fit my first criterion, I narrow the field down further by looking at all of the potential candidate's stock charts. What I am looking for in this chart search is a chart pattern that shows clearly that the stock has stopped falling in value and has basically bottomed. I also like to choose stocks that have bottomed and entered sideways patterns. Stocks that have charts, which have just started upward from their bottoms or sideways patterns, are also exceptable to me for possible consideration. 

The third and final criterion I use for my approach to bottom fishing is to search the stock charts of my potential candidates for trading gaps. Stocks that have trading gaps above their present price trend lines ARE THE ONLY STOCKS IN WHICH I WILL CONSIDER INVESTING FOR A BOTTOM FISHING TRADE. But what are trading gaps? Trading gaps are a common phenomenon in stock charts. A gap occurs on a stock's chart, when there is a leap in value either downward or upward from the stock's present trading price. So, for example, if stock XYZ is trading along on the exchange at $ 20.50, and perhaps trading in a range between $ 20.48 and 20.54, the trades that occur every moment or two will appear on a chart like a solid line. But what happens to the chart of XYZ, if the stock's bid and ask prices suddenly leap upward to 21.10 and 21.14 respectively? The chart of XYZ will then appear to have an open space or gap in price on it. This open space is basically defined from where the stock was trading previously at 20.50 all the way up to 21.10, and this opening on a chart is called a gap.  Gaps are considered extraordinarily important phenomena in Stock Market trading circles. Why? Well, many traders, and especially most day traders,  look for gaps on the charts of stocks they are considering for a trade,  and these same traders attempt to place their trades in such a way so that they hope to see their stock trade its way TOWARDS FILLING the GAP. So, for example, if a trader sees a gap exists on a chart, and that gap is located on the chart of a stock below its present value, the trader will more than likely go short and try to make money on his or her trade towards the goal of reaching the stock's gap bottom price. On the other hand, if a trader sees a gap above the present stock trading price, they might choose to go long and try to trade the stock towards the goal of making money on the stock all the way up to the gap's top price. Gaps are prized by most traders on Wall Street because they provide opportunities for trading either up or down.  

So now we come back to our bottom fishing trade. If I can find a stock that fits my first two criteria listed above, AND THAT SAME STOCK HAS A TRADING GAP ON ITS CHART ABOVE ITS PRESENT TRADING PRICE, that stock is the stock that I will choose for my trade. By the way, the larger the gap on the chart above the present stock price, the better. 

Right now, there are three stocks on my radar that fit my criteria for a good bottom fishing trade. I will list the symbols of these three stocks here, and you can go to your charts and examine each one of them. By the way, when you do go to your charts to look at these candidates, make sure that you use a chart service that shows trading gaps. Some chart services do, and some don't. As I have mentioned in other articles I have written, I use the chart service from www.investors.com for my charting analysis. The gaps are clear and evident on that partcular chart service, but there are many other services that provide similar charting clarity. 

Here are the three stocks that I believe are presently ready for a bottom fishing trading expedition: BKS, MON, and LEAP. For disclosure purposes, I should tell you that I own BKS and LEAP. I do not presently own MON, but I am looking at MON, and waiting.  MON just missed its earnings today, October 7th. So if you want to make a trade in MON, you ought to wait for a while for the stock to settle to its bottom price. I suspect that it may be somewhere around 70 or so, but it could go even lower. MON is a great company and an excellent candidate for a potential bottom trade, once it falls to its bottom and begins to move into a sideways consolidation. Just make sure that the bottom is in and the stock volume is beginning to turn upward with its price.  

So, this is how I conduct my bottom fishing in the Stock Market. In my opinion, this screening method for choosing stocks definitely minimizes my risk.  By following this method religiously, I have been fortunate enough to enjoy a number of successful trades. You can use this method too. Hopefully, you will have as much luck with it as I have. Like any other analyst, I can't make you any guarantees, but I can tell you that this method of picking stocks has been kind to me.

Good luck with your bottom fishing. I hope you catch some big fish.    

John K. Brackett, Ph.D.

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For questions or comments, contact John Brackett at: www.Xomba.com/JKB3000 or at: JKB3000@live.com

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