OK, disclaimer time.

I'm about to explain some methods that have made me a bit of cash on the stock market. In no way do I encourage you to take these methods and use them straight away on your own money - that's crazy talk, you'd be properly off your head to do it, so don't.

How to use this information

I've studied the stock market for years, tried things myself and then only traded after I was completely happy with what I'd discovered. If anyone tells you there's a fool-proof method of trading that will give massive returns for no risk, they're lying.

So, take what I'm about to tell you here and try it out on paper first. Don't use any money at all until your 'fantasy' trades are earning cash and you've proven the system. If you need to make some cash quick, go get another job - this 'aint the place to learn how to do it. Honestly, move on - nothing to see.

Still here? Sure? Promise not to waste any cash in the next month? Promise?

OK, let's crack on...

Some of the greatest investors of all time make some huge losses in their portfolio. Some of them have had consistent losses for month before turning a profit and they all have one thing in common - they didn't give up.

During the latest financial snarl-up I heard a brilliant quote : "Everyone is a long term investor. Until their shares go down."

This sums up the general short-term attitude of many investors; they just can't bare to see their portfolio lose money and so they bail out when it gets just too much. Problem is, if you do bail out then you've lost. If you bail out of a share because it's going really low and you can't take it anymore, then you shouldn't have bought in the first place.

Keep that in mind. If you're doing long-term trading you can expect your shares to dip every now and then, sometimes scarily so but this is long-term. Unless the company is going to crash and burn completely or if it's a bank, get nationalised, then you should stick at it.

If you choose a stock based on the fundamentals of its balance sheet, the money it's got coming in and its general health then you should have the chutzpah to stick with it.

OK, let's look at long-term trading and how we can expect it to work for us, if at all.

There are many definitions in the stock world and one of the most loosely defined has to be long-term. For full disclosure I have to say that I don't do long-term trading myself, I'm happier with a quick buy and sell in order to make a bit of money often rather than lots of money later on in life.

Generally, long-term trading is when you hold a stock for many months or years. That's about as accurate as I can get but don't get hung up over it. Just bear in mind that you will be keeping your shares for a while.

How to choose them

You could bury your head in books on fundamentals, statistics and other data that will probably blow your mind, but I prefer a more direct approach using the data that is available to me at the time. Experiments have found that it's not the one who does the most research that wins, it's just the one that sticks at it.

But you need to do something, so here's a few ways to pick your stocks:

• Choose solid stocks that everyone knows about
  
  This is simply sticking to what you know. You have gas coming into the house don't you? Is gas running out? Does it keep going up in price? Chances are that as prices go up so will profits so in the long run it may be a good idea to invest in a gas company.
  
  Check that the company is sound financially and that it has some other good investors and then go for it.
  
• Follow other people
  
  As more people invest in stocks and shares, the price starts to be pushed up. If a particular stock is being invested in by some big hitters (check out Warren Buffet) the you can bet it's a good one and other people will follow.
  
  Many people make a good living out of simply following others
  
• Check the fundamentals
  
  Bit more complex this, but you could use a bit of software such as SharesScope that allows you to analyse shares based on many bits of data. Warning here though - if you're not sure what the data looks like, don't get investing based on it.
  
• Gut instinct
  
  I know it's not really great advice but again, research shows that those who use gut instinct are not really any worse off than those who go crazy with research. Makes you wonder if you shouldn't just roll dice*.

* note: Don't roll dice

I can't help you with much of the above other than the fundamentals bit, so let's have a look by using my favourite software, ShareScope.

I won't cover everything here, but I'll just give a few ideas of the really 'in your face' information that could help you choose your long term stocks.

• Price High/Price low
  
  We want shares that are going to go up and a good indication of where a share is headed is to look at where it's been in the past. If a share is at the bottom of its historic price then there's a chance it will be worth a bit more in the future, so take a look at its highest and lowest price first.
  
  If we look at PTX on the image above, we can see that it's lowest price is the price it closed at yesterday. Its highest price is double its current price. Looks like a tick in the box for me, but first I'd want to make sure it's actually at the bottom and not headed down further. We'll look at this later.
  
• Broker Consensus
  
  What are all the other brokers saying? It seems here they think it's worth buying and so that's another tick in the box
  
• EPS - Earnings per share
  
  This gives a good indication of the company's profitability. In the case of PTX it looks like they're not making much. Not too bad, we're not after a full list of ticked boxes and in the current market conditions you could be forgiven for wondering if anyone is making any money, so check other things too.
  
  If the two checks above were poor and then EPS was negative, I'd have shelved this share.
  
  
• PEG
  
  There are many ways in which this can be calculated and it's based on projected numbers so it's not always very accurate however it can be useful. It's good to compare this to other shares in the sector. A lower number in relation to other stocks means the share is probably undervalued and therefore worth a buy.
  
  

So, I said there were some other things to check, so as I'm erring towards buying some of this stock, I'll go check out the graph. I've already seen that it's at the bottom of its price range, but is it going up or down?

Let's see.

Now, I wouldn't touch this with a barge pole. It looks hideous. It doesn't mean it's the end of the road though, maybe they will hear some news that will boost this share, in this case I'd look at even more data and make a judgement based on that.

Here's the big problem with this trading thing; it's personal choice at the end of the day. It might be that this share is about to rocket because they're just in negotiations to be bought or they've invented something fantastic. It's up to you whether you're interested in digging deeper and fining more information.

So, let's try and find a share that's doing well and might be worth a punt.

So with this share we can see that the price is going up and the fundamentals are looking quite healthy.

I'd be tempted to buy this particular share and I'd now be looking to set a target, i.e. how much I want to make from it.

Setting targets

It's good to have goals in life and buying shares is no different, so what can we expect to make out of this particular share? Well, it's currently at 90p and it used to be over £2. Looks good to me for quite a big rise.

Bear in mind people's psychology here - other's are thinking exactly the same as you and I and so others will be watching this share to keep on going up. Myself, I would expect that this should at least get to 1.80 by the end of the year so if I invested £1000 I would expect to double it in six months. That's 100% interest in six months. Better than the bank, isn't it?

Keep this in mind:

• Study the fundamentals and only invest if you're totally sure
• Don't get too engrossed in it, eventually your research will yield no more accuracy
• Only invest what you are happy to lose

And have fun! Unless you make this your job, you can have fun at this and make some money to-boot.

In subsequent hubs I'll explain how to set stop losses so if you're looking to reduce your risk you can make sure you don't lose your shirt.