Buying and selling any financial instrument in the market today is tough. The “when” to buy or when to sell is the million dollar question. Everyone knows “market timing” is a at best a gamble.
So, what can you do to maximize your profits when buying and selling stock? Here are a few rules you might want to consider.
First, don’t buy on an “up market” day and try not to sell on a “down market” day. I know your emotions tell you exactly the opposite. Buying always begets more buying and selling always begets more selling. Most people tend to follow the market.
The stock market changes day to day. After 25 years in the market I can say one thing for sure. Things will change. Imagine the market is having an up day. Many stocks are up big.
I know exactly what you’re thinking. “I better get in now or I might just miss my opportunity.” This is exactly the wrong way to think. Most of the time it is also the wrong time to act.
It pays to be patient. Resist your emotion to act. Peruse any of Mike’s posts [on this web site] and you will learn when buying and selling anything your action is always driven by emotion.
There aren’t many instances where I have really missed an opportunity to buy which never again presented itself. Given the right amount of time history always repeats itself. Many times I have bought a stock only to watch it then go lower. Much lower.
Second, don’t chase a stock which is going higher because you think you will miss your opportunity to buy. Wait for it. Remember, patience is a virtue. The long term trend of the stock market has always been to go up. Each stock exhibits its own price action. Try to understand what that behavior is before you act.
Look at the Beta value of the stock you’re interested in. Beta is a measure of the volatility of a stock price as compared to the broader market index. The lower the Beta the less volatile the stock price. I usually look for a Beta around 1 or less than 1.
Spend time analyzing charts before you act. Try and understand how the stock has acted over time. Look near term and over the past few years. How it has has performed as compared to the rest of the market?
Many stocks move in a range between resistance and support referred to as a channel. If a stock moves in a channel which has historically been a few dollars wide, with patience you can make money buying at the bottom and selling at the top.
You can buy and sell in this channel over and over again. The bottom of the channel is often called support and the top is often referred to as resistance.
Last but not least, determine your desired entry and exit prices before you buy or sell. Doing so will help you take emotion out of any decision you make. No one ever made a mistake by taking a profit. You can always buy a stock for the second time.
So remember to be disciplined and to have patience. Why? Because patience is a virtue.
