When is the Right Time to Purchase and Sell Stocks?
While buying and selling stocks may sound exciting, it is also confusing and complicated. However, that does not always have to be the case. To determine when to purchase and sell stocks, you need to be conversant with how the stock exchange or stock market works. It’s important to know that there are numerous stock markets and exchanges across the globe through which traders purchase and sell company shares or stocks.
Stock exchanges and markets involve numerous people purchasing and selling at diverse prices because they have varying ideas on their (stocks) value. For instance, while one investor may predict a price increase, another may forecast a drop in prices. How then can you determine when to buy or sell stocks? Read on to find out.
Buy When Stocks are Underestimated
Determining whether a stock is underestimated is an excellent way of figuring the price range. Further, you will also evaluate the approximated profit and growth of an organization’s future. Doing so will enable you to understand the stock’s undervaluation or overvaluation in the market.
A critical valuation strategy you can use is DCF (discounted cash flow). This technique considers an organization’s potential future cash flows and uses practicable risk factors’ to discount them (cash flows) to the present. The speculative price target, in this case, is the general sum of discounted imminent cash flows. Buying the stock at this point would be ideal if the prevailing stock price is less than that value.
Evaluating an organization’s dividend advancement, comparing the price-to-earnings of a stock, and multiplying it to a competitor’s stock is a great way to know when to purchase a stock. Comparing the price to cash flow and price to sales is a critical metric that investors can use to establish whether a stock is cheaper than its rivals.
Buy a Stock when It’s on Sale
Think about stock buying as though it was a shopping spree. Customers always expect exciting deals when they go shopping. One of the best times to enjoy exciting deals is during the Christmas holidays. However, stock trading investors hardly get excited when stocks are on sale.
Many investors avoid purchasing stocks when prices are down. When stocks are oversold, investors can easily determine whether or not they are on sale and their likelihood to rise in the future. It is crucial to establish a scale from where you would buy stock instead of targeting a single stock price. An ideal starting point would be general agreement price targets and analyst reports. These factors are an average for all analyst options available. Investors would be in critical difficulty establishing when to purchase a stock without choosing a price range. These figures are available on nearly all financial sites and are easily referable.
After Comprehensive Research
Investors can leverage analysts’ advice and prices in financial journals as a starting point. However, they will need to research. Competitive investors decide when to enter the market and purchase stock after doing due diligence and analyzing a stock extensively.
There are various ways of doing research, such as reading an organization’s annual report, analyzing their recent presentations on industry trade shows or online, or checking their recent news publications. Often, this data is available on an organization’s corporate website under the investor relations section.
Monitoring Technical Indicators
An effective way to determine when to purchase or sell a stock is to study the stock chart for the previous five years. Investors can do so by tracking technical indicators. This technique includes periodic stock price variations. Find out whether the stock is trading below or above its average and the total shares traded per day.
Evaluating the stock volume is a critical indicator. A drop in stock volume could indicate reduced share interest which may trigger a drop in its share price. If the stock has demonstrated a recent increase, it could signify strength and growth opportunities in the underlying fundamentals.
When to Sell a Stock
The best time to sell a stock is right after a takeover. The price at which an organization was purchased is its traditional takeover value which ranges between 20 to 40%. Investors whose stocks are acquired as a premium should dispose of them immediately. While there are various advantages of holding stock after a takeover, seeking alternative investment opportunities is better from an opportunity cost viewpoint.
The market is filled with different stocks, making it difficult for investors to know when to sell or buy but these tips can make the process easier. Remember, researching, doing your due diligence, and using common sense will help you make more informed decisions.