Identifying Sectors

[pmn100]

First post.

I would like to know the methods traders use to identify sectors in which to trade stocks. I'm aware of the need to evaluate each potential stock to determine if the trading channel is capable of turning a profit based on the size of your trading capital, but I want to know the step before that, identifying the sectors.

For example, people might be involved in the finance industry so they might be inclined to look to the banking sector to identify potential stocks. Some people might just be interested in certain individual companies and so look straight to individual stocks. But I'm wondering if the identification of sectors is/should be more intelligent than that. For example, as we may be entering rough economic times, would it make more sense to look to sectors that hold up well like pharmaceuticals, health, defensive sectors? And on a similar note, is it wise to stay away from sectors that tend to suffer in downturns, like retail?

I'm looking to trade stocks over weeks/months.

Thanks

 

[tomorton]

hi.
Its very easy to go bust investing in stocks in the 'right' sectors e.g. defensives like tobacco, utilities, pharmas in recessions, tech and media stocks in growth times. I do not trust such generalities over time frames we are talking about, the potential drawdowns on individual stocks, event when these truisms apply, can be too massive.

However, I do take a top-down view each week of the FTSE350 sector index charts to identify established uptrends, staying most of the time above the 50MA over last 3-4 months, then focusing on the stocks with similarly established uptrends in that sector. I would trust the chart trend to normally continue and aim to take a position on a pull-back, with a tight stop. I never trust journalists and other commentators who blithely tell me now is the time to buy supermarkets, now is the time to buy housebuilders etc. A rule I apply is to trade what I see, not what I think, so I'm certainly not going to trade what someone else says they think.

I also remain open-minded to outstanding performers even if they are in underperforming sectors - e.g. ASOS in Gen. retail.