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Investing Dilemma in Buying and Selling stocks
It’s been always a dilemma for a newcomer or experienced investor when to buy and sell stocks or securities. In the noise of the market, it is very difficult to pick the right price and right time to execute any decision whether it is buying or selling. But this is the part of trading which makes it very interesting and difficult at the same time.
Many people advises to buy stocks or securities on Monday as the price is comparatively low and to sell it on Friday as the stocks or securities trades at higher prices on this day. In a nutshell, you buy at lower price and sell it on higher price, the margin is your profit which you take back at home. But honestly, there is no such thing as standard best day to execute buying or selling orders. It depends on lot of things which we will discuss later in this article.
Understanding the Market before buying and selling stocks
Trend is your Friend: Understanding the market trends is an essential skill to make money in this game. It’s a skill which develops after spending a good amount of time in the market. If you are able to catch the trend at the right time then there is a great possibility you will end up making good amount of money. But keep in mind exiting the trade at the right time is equally important as entering in the trade by catching the trend. You can use indicators to catch the trends but to be good at it you will have to gain some experience.
Best time for buying stocks
- During market fall: The market fall can be a great opportunity for investors to buy stocks as the shares are available on a very low price in this time. But this should be done with a long-term perspective. Whenever market falls due to any reason, it has been seen that stock prices often declines and when it declines too much, it opens doors for bulls for buying. Warren Buffett famously said, “Be fearful when others are greedy, and be greedy when others are fearful,” highlighting the importance of contrarian investing.
- When Prices appear Attractive: Choosing when to purchase a stock, it is crucial to evaluate its valuation in relation to its intrinsic worth. Look for stocks that are trading at a discount to their competitors in the sector or below their true intrinsic value. To assess a stock’s attractiveness, apply fundamental analysis tools including dividend yield, price-to-earnings (P/E) ratio, and price-to-book (P/B) ratio.
- Before possible positive announcement: Buying stocks just before a possible positive announcement can be good strategy to gain profits. Positive announcement includes earnings announcements, product launches, regulatory approvals, or industry trends favouring a particular company. However investor should do in-depth study and take into account any possible dangers related to these occurrences.
Best time for selling stocks
- When company’s fundamentals shakes: If a company’s most fundamentals like revenue, profits, debt, etc. crumble simultaneously, it should be a red flag for the investors so he/she should consider to square off his/her positions to avoid any further losses. The mentioned metrics can be downgraded due to many reasons like industry disruption, management issues etc. But you should do in depth analysis in this situation before taking any decision as sometimes it can be just a bad phase for the company.
- When targets met: Having well-defined investment goals and exit strategies is essential for profitable investing. Before buying a stock, decide on your desired price objective or return on investment (ROI). Sell the stock to lock your earnings once it hits your specified target. Stay clear of getting too attached to a stock just because you think the price will rise more.
- During Market Highs: Investors may reduce possible losses by selling stocks during market highs or when values become unnecessarily stretched. Excessive positivity towards stocks and market excitement can result in inflated stock prices, which presents a favourable opportunity to sell and reap gains. To know whether the market is nearing unsustainable levels, keep eyes on market sentiment and indicators like support & resistance, trend lines, RSI, etc.
Conclusion
It takes skill to time the market, and there is no standard approach for buying or selling of equities. Patience, dedication, and research are all necessary for successful investing. Focus on finding excellent firms with solid fundamentals and holding them for the long term, as opposed to trying to time the market precisely. A well-defined investment plan and discipline during market turbulence are two ways investors can improve their chances of reaching their financial objectives.
Recall that investing is a marathon, not a sprint, and that in a market that is always shifting, it is critical to be knowledgeable and flexible. A successful investor or trader always learns from the market and never establish himself/herself as the king of the market rather he/she stays a student of the market for life long.
Disclaimer: We do not advise any type of buying or selling of securities in this article. All the views expressed in this article is personal. User should do their own research and analysis before investing as it is subject to market risks. You can check out SEBI’s advisory notice on investing here.
