When to Buy and Sell Stocks
The most common rule of thumb that most financial advisors give is to buy at a low price and sell when the price is high. However, most investors do just the opposite.
The major mistake that investors commit is to observe price signals and to base their stock investment decisions primarily on them.
What is more, a rise in the price of a stock, which has been accompanied by a lot of media attention, means that other investors will also purchase the stock. As a result its price will rise further. However, you may be too late for the "hot" stock since many others have also understood about it and the price at which you will purchase the stock may have already increased.
In order to make profits from jumping from one stock to another you should gain the appropriate experience and flair. Additionally, such movements from one stock to another can be classified as anything else, but not investing.
These short-term trading activities have not only their risk implications, but also their tax effects.
Let's now consider the case in which the price of the stock has fallen. In such a case you may be influenced by the rest of the market's behavior, which jumps into selling the no longer profitable stock.
In this way your decision of selling the stock will be guided by the low price. However, there are other factors that may influence the lower stock price. Some of these factors relate in no way to the reasonability of the investment. Hence, using price signals as the basis for your stock selling decisions may be misleading. Additionally, once the price has decreased this may mean that it is the right time to purchase stocks of the company, but only after you have done the required preliminary research.
Final Piece of Advice
Sound stock decisions should be made on the basis of thorough company knowledge, not just on the basis of the price of the stock. A rising price most of the times means that the time to sell the stock is nearing. On the other hand, a falling price may signal that the time to purchase stocks is coming.
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- The Long-Term Scope of Stocks
- Investing According to Dow Jones Industrial Average
- Allocating for Investing Purposes
- Stock Trader vs Company Investor
- Before You Buy Stocks
- Bull and Bear Market Strategies
- Electronic Trading vs Stock Exchange Trading Floor
- Long-Term Stock Investment vs Short-Term Trading
- Stock Market Prices and Buying Strategies
- Personal Reasons for Selling Stocks
- When to Sell a Stock
- Beating the Market Strategy
- Direct Stock Purchase Options
- Stock Portfolio Diversification
- Dogs of the Dow Investment Strategy
- Purchasing Your Company’s Stock
- DRP Types and Benefits
- Dogs of the Dow Performance
- Investment Strategy Types
- Common Stock Investing Strategies
- The Warren Buffett Way - Principals for Successful Investment
- Value Investing Basics
- Has the Time for Selling Stocks Come
- Selecting Your Investing Strategy
- Dollar Cost Averaging Benefits
- Determining the Number of Stocks to be Included in Your Portfolio
- Ex-Dividend Date - Why It Matters
- Constructing a Successful Stock Purchase Plan
- Understanding After-Hours Trading
- Strategies to Deal with a Down Market
- Stock Market Day Trading
- Strategies to Deal with a Weak US Dollar
- Buying Stock on Margin
- Stock Price Forecast
- Stock Option Strategies
- SEC Order-Handling Rules
- Stock Portfolio Balance Maintenance Techniques
- Short Interest Ratio Monitoring
- Holding Your Securities: Physical Certificate
- Holding Your Securities: Street Name Registration
- Holding Your Securities: Direct Registration
- Management of Investment Decisions Through Stock Screens
- Direct Stock Purchase Plans
- Down Market and Discounted Stock Opportunities
- What Investors Need to Know about After-Hours Trading
- When to Apply Averaging Down
- What Investors Need to Know about Auto-Trading Programs
- Financial Analysts: NYSE and NSAD Rules and Disclosures
- Insider Trading Tracking
- Asset Allocation – Choosing the Best Allocation Strategy
- Investing in Equity-Indexed Annuities Explained
- The Pros and Cons of Exchange-Traded Funds
- Prepaid Tuition Plans versus College Savings Plans
- Characteristics of Variable Annuity Products
- Diversification of Assets
- Rebalancing Your Assets
- Cross-Market Trading Circuit Breakers
- Margin Requirements for Pattern Day Traders