by Das Brain
The timing of when to purchase a stock is one of the hardest thing to do. Market timing as it is called, is a skill that generally takes many years to learn and become proficient at. In regards to long term and intermediate trades (holding stocks or options from months to years out), I am quite proficient at this. Most of the time I am correct in determining which direction the stock price will go. However, as for short-term trading (day trading, swing trading), I still have quite a bit to learn and improve in this area.
Both of these time frames do require you to study stock and index (Dow, S&P) charts. The study of stock charts and market index charts is called “Technical Analysis” and there are plenty of books out there that you can read to teach you this knowledge. Personally, I have read about 2 or 3 books on this subject so far and have found that it really helped in the timing of putting on a trade. Technical analysis, take into account a lot of indicators like Volume, Moving Averages, MACD, CCI, RSI and a heck of lot more pieces of information that you have to take into consideration before you decide to enter a trade. If you are going to put real money to work using stocks or options, you better study the stock chart and stock index charts to know if the market is going up, down or sideways and technical analysis will definitely help in this matter.
For long term trades (holding for 3-5 years), I like to buy into a stock or buy LEAP call option contracts (predicting a rise in stock price), when a huge stock market correction happens. By huge stock market correction, I mean that the Dow, S&P or Nasdaq has recently taken a downside hit of 10-20%. My purchase and sale of Corning stocks is a good example. After the dust settles from the carnage of the market correction, then I will start looking for solid or good companies to buy stocks or call options (LEAPS). It usually helps to have a wish list of good quality stocks ready, so when a stock market correction does happen you are ready to capitalize on it. Hold the stocks for many years, don’t worry about short-term volatility and for the most part you should be well rewarded. One thing to note is that these 10-20% stock market corrections don’t come every month, it is more like every once a year or two years, but when it happens you will know, as it will be all over the financial news headlines. Also, note that it doesn’t happen all in one day, sometimes the downtrend may take several months which is usually sparked at the beginning by a initial big drop (sell off).
See diagram below:
My next post will be Part 2 and I will write about intermediate and mid-term market timing which is very similar in criteria.
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[...] In the last post (Part1 ) I wrote about when to get into a stock for long term investing and capital gains and as promised I will write about my experiences in regards to mid-term and intermediate-term market timing in this blog post. I will save the short-term trading information for part 3. [...]
[...] This fits one of my criteria for buying quality stocks or options as outlined in my post “When to buy a stock or option – Market Timing” [...]
[...] In this post called ”When To Buy A Stock or Option – Market Timing – Part 3″, I am going to mainly focus on short-term trading, as in Part 1 and Part 2 the subject of long-term and intermediate term timing was covered. [...]