Knowing how to identify the right time to buy and sell stocks is one of the main concerns for those who do business on the stock exchange, especially for inexperienced investors.
The financial market is volatile in essence, which means that there is no certainty and that even the most conservative investments involve a certain degree of risk.
To succeed in selling a stock, it’s essential to know not just the market but also yourself, since in certain instances you’ll need to act against your own instincts.
Buy low and sell high
Let’s suppose you’ve seen in the news that the shares of a said company are valued and you feel tempted to invest, is it a good move? Not according to current strategies in the financial market.
This is a trap many beginners and laypeople fall into. They learn about a certain asset valued by the news and buy for a high price, betting that the appreciation will go on.
Sadly, the market does not work in a linear way and has moments of ups and downs. As a result, those stocks begin to depreciate and the inexperienced investor may panic and sell low, or at the maximum when the price returns to what they initially paid.
This is a mistake that compromises investors’ earnings, but one that is easily avoided by those who already know the golden rule: buy when the price is low and sell when it is valued.
There is no magical formula
The logic of the market is to buy low and sell high, but how do you know which low stocks tend to be valued in the near period? Or how do you identify if the appreciation has already reached its maximum?
Being well informed and following the market movements is essential in the strategy adopted. Just be careful not to be carried away by the momentarily unfavourable news, which may lead you to act in the so-called herd effect, where decisions are made without due thought and strategy.
Make a strategy and stick to it
The only way to buy and sell stocks for consistent results is to have a strategy that allows you to be aligned with the most likely scenario and ready to protect yourself in the worst case.
To make the right decisions, you must be true to your strategy and set aside any noises that may arise around you. Otherwise, you will eventually buy and sell stocks without a consistent foundation.
Knowing how to buy and sell stocks will only make sense once you know exactly what to do if the worst-case scenario happens.
Many investors end up losing money and leaving the stock market because they don’t understand that. Regardless if they have the best strategy in the world, the market is an environment of uncertainty, where you always have to be ready to deal with losses.
In this context, a stop-loss order is one of the most important tools for stock traders. A stop-loss order allows your broker to decide to buy or sell once the stock reaches a certain press, it’s designed to limit an investor’s loss.
When to sell a share
Imagine that you bought stocks from a good company and now they have risen 100% in two years. At first, it may seem like a good idea to sell at such an extraordinary profit, but is it the best thing to do?
Not necessarily, because good company stocks tend to grow even more. You should only sell if it goes from a good to a bad company, that is if the company behind those stocks starts to take losses.
Of course, you may want to sell your shares simply to pocket profits after the valuation of a particular equity. It is also true if you have stocks in your portfolio whose returns are no longer interesting and you want to dispose of them to buy other more profitable ones.
You can also resell your shares for profit if they have appreciated a lot since you acquired them.
Beyond the scope of your goals, there are specific cases that should prompt you to sell your shares without delay:
- Its price is in a strong and enduring downward trend
- An event has occurred or will occur that has a strong possibility of causing a drop in the price of this asset
- One or more technical indicators announce a sharp fall of the stock
- The sector or activity in which the stock is concerned suffers a major economic crisis
Nothing is unchangeable in the market, so you’ll need to have a broad view and understand the functioning of this environment. But keep in mind that your main guide will be your perception and also your analytical skills, always taking into consideration your own selection criteria and your investor profile.