Traditional wisdom says that by investing in companies with a low price to earnings ratio you stand a better chance of profiting. At face value, this makes sense. After all, don’t you want to invest in companies that can only increase in their profitability? By searching out these low P/E stocks, you can also make quite a bit of money as a trader. The secret to this is to look for stocks poised to go up in value over the short term.

This does not mean that you should ignore all stocks with a high P/E number. On the contrary, stocks with good growth rates can be extremely profitable for you. You will want to search out stocks that have good returns on equity in these cases. A high return on equity shows traders and investors alike that their stock is making good use of the assets provided to them. This is a sure sign of a healthy stock—one that investors will flock to causing a short term spike in share prices.

As long as you remember that these signals are not 100 percent accurate, the Disciplined Trader will be fine. Even if a company looks great in the above mentioned categories, not everything will go as smoothly as planned with each trade. You will want to use the normal amount of caution when making such trades in order to protect yourself from the inevitable and often inexplicable dips in share price that a stock makes throughout the course of the trading day.