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Getting started
Market timing secrets |
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When you should buy a share is crucial, but so is when you sell. It is useless simply
having a paper profit. What counts is money in your bank account. Read the following carefully: |
When you should buy
- Only buy a stock when you have a good reason. The company should be strong on fundamentals, with a reason for the share price being about to move upwards.
- At some financial web sites, you will find details on the day's biggest
winners and losers. Invest in yesterday's losers, as well as in stocks that
have just started rising.
- Buy shares with relative strength, which implies a strong price
performance over the last month or two, or last year, compared with other companies
in the
sector. The PE ratio is likely to be high.
- Buy stocks that are liquid, which means easily bought and sold. They are
often large companies, because these have the narrowest spreads
and
the most trading volume.
When you should sell
- When you buy your stock, set the percentage rise at which you plan to
sell it. You will learn by experience how to assess this.
- If your shares are rising fast, consider selling half your position to lock in a certain profit.
- Cut your losses and run your profits. Use a stop loss (see below).
The stop loss
- The simplest type is the conventional stop loss. If the shares
fall a given percentage below the original purchase price, you will
sell out.
- Better still, use the trailing stop loss. This trails the share price. If
the share price falls a given percentage from the previous day's level, you
must sell out.
- Do not set your stop loss percentage too low. In choppy markets, if you
used only a 10% stop loss, you would be closing out on the first temporary
dips. Ride these by using a 15%, 20% or 25% stop loss.
More about timing
Do not rely too heavily on technical analysis – reading charts of past share price or market movements – to time your stock purchases and sales. To find out more, go to Technical analysis for profit.
For more about timing the markets, including techniques of technical analysis,
order Everyone's
Guide to Online Stock Market Investing by Alexander Davidson, published
by Kogan Page.
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