Investools Investor Education
7-Step Investing Formula™

The advantage of having of an easy-to-follow, step-by-step investing process with easy-to-use, Web-based tools is that you rely on facts to make decisions—not emotions. The benefits are less stress, better results, and dare we say it, fun.


Step 1: Prepare to be an investor
You are the most important component of your investing success. If you can unemotionally approach the market and adhere to your trading rules, you stand a much better chance of being successful than if you let your emotions take control and start buying and selling at random. To help you become your own best investing asset, we'll help you dispel the myths of self-directed investing, set reasonable expectations for your investing returns and understand your psychological biases.

Step 2: Protect your investment capital
Have you ever wondered what the secret of successful investing really is? It is proper money management and diversification. Don't be surprised if that sounds a little boring. Many hope there is a magic trading system that will help them outwit the market. But even if they found such a system, they could lose all their gains by not limiting their risk through money management and diversification. The secret lies in the small, simple things that have the biggest impact on the end result. Proper money management and diversification can help you protect your capital so that you can achieve the most consistent gains.

Step 3: Start analyzing from the top down
Did you know that every stock belongs to an industry group? A critical step in our systematic investing process is monitoring the movement of institutional money flow into or out of these groups. If a group is out of favor, it indicates that institutional money is flowing out of those stocks. Our proprietary tools show you which groups are rotating into favor and which are out of favor. Using these tools helps focus your attention on the best market sectors and make sure that a stock you're considering is in a strong industry.

Step 4: Conduct a thorough fundamental analysis
It doesn't matter whether you find stocks through a search or in the newspaper, or if you prefer to invest in a company with which you're familiar. By doing a quick fundamental analysis using our Phase 1 and Phase 2 scoring system, you can confidently reduce or limit the amount of emotion that influences investment decisions: either a stock passes or it doesn't. Fundamentals tell you the good and the bad, helping reduce risk. Good corporate fundamentals provide a great foundation on which stock prices are built.

Step 5: Search for additional strong stocks
Now that you have performed top-down and fundamental analysis, you know what type of stock to look for. The next step is to search for additional opportunities to complement your portfolio. Knowing how to look for these opportunities puts you in control of your investing. You can do this by using prebuilt search tools to find positive stocks quickly and easily. The Investor Toolbox® offers many prebuilt searches to help you find potential investment candidates. With a simple click of the mouse, you can easily find 25 of the best stocks from the entire database in just a few seconds.

Step 6: Conduct a thorough technical analysis
After you have compiled a list of fundamentally solid stocks according to the Phase 1 and Phase 2 scoring system, you can monitor them for the opportune time to buy and sell according to technical indicators. Technical analysis is useful in forecasting a stock price's potential direction-allowing you to time your entry and exit points. With our red and green arrow system, you can more accurately interpret technical indicators such as moving averages, MACD, stochastic, volume, support and resistance, and others-in just a few minutes per stock.

Step 7: Manage your portfolio
Every day, active investors are moving between steps 1-4, looking for great stocks and watching for buy and sell opportunities. Managing that information effectively is critical to your success. Our online analysis tools make it simple for you to build, manage and monitor your portfolio. The more stocks you're able to track effectively, the more opportunities you have to find good investments.

Most stocks in the same industry―whether it's the financial industry or the oil industry―generally move in the same direction. If the group is strong, it's an indication that institutional money is flowing strongly into the group, causing most stocks to rise. The best-performing stocks in the group generally make the strongest moves, but even lower-quality stocks in a strong group will typically rise with the rest of the group.

Having a tool that helps you do industry group research allows you to better focus your attention on the very best market sectors and to make sure that a stock you are considering is in an uptrending industry.