In this edition of Get Started Trading blog series, we will walk you through some key ideas and indicators that will signal the best time to buy stocks or sell stocks. Knowing when to buy or sell a stock is about understanding timing and trends. As a trader, your primary goal is making a profit and you can make that happen by knowing what to watch out for and when to pull the trigger on your trades.
A common misconception about trading is that making money in the stock market will happen by choosing the right company. There are some stats that are helpful for deciding which companies to trade but the company you choose is actually not as important as when you make your trades.
Even though the when is more important than the which, you do still need to choose a company before you can address the analysis to answer the question of when. When choosing which company to trade, we favor those with a high trade volume. We advise you to choose companies with over one million average daily volume.
This indicates the stock is liquid in the marketplace and will make it easier to get in and out of trades. If a stock suffers from low volume, it can make it difficult to get out of or close the trade when you want.
A great place to start when looking at companies is the TradeSmart University Top 150 which you can download here. It is our watchlist of stocks for trading. They all have high volume in the market and, because of all of the constant activity on these, they are usually fun to trade.
After you have chosen a company to trade, finding the right time to buy or sell that company’s stock requires analysis. There are two types of analysis for stocks: fundamental analysis and technical analysis. Both fundamental and technical analysis seek to find value for any particular company stock. The truth, however, is that the value of any stock is the price that people are willing to pay for it. The current value is defined best as the current price it is trading for.
Fundamental analysis looks at all of the underlying issues of a company and attempts to establish a theoretical value for the company. Some problems with this are that it can take days or even weeks for an assessment, it is based off of theory, and the analysis may not be accurate.
“Our society has been programmed to believe that if a company is good, the stock should go up.” - Jeremy Whaley
Most people expect a stock to behave in a theoretical way, as in the way fundamental analysis works. We believe if a company had a good year, the stocks should go up. On the contrary, if a company suffers from scandal or profit loss, we feel that their stock will go down. However, this is not always how it works. In reality, stocks go up and down all the time regardless of circumstances.
Technical Analysis studies the actual price action as it occurs in the market and uses that information for trading decisions. Technical analysis does not focus on theory but on what is actually happening in the market minute by minute, day by day. It allows traders to respond quickly to immediate market information.
At TradeSmart University, we primarily focus on and teach technical analysis for our trades. You can trade any stock you want but your profitability is completely dependent upon when you make those trades. In order to understand the when, you need to understand how to analyze your company stocks.
You can only be successful in the market if you have a good, reliable charting software to help you analyze your stocks. After you have installed your charting software, you will then be equipped to advance your learning and learning. In the meantime, stay tuned to this blog series for more valuable information to help you get started trading.