While picking a stock to trade can be quite easy, ticking off a few check boxes and you are quite set to go, entering an actual position in the stock can be a difficult affair. Many people find it hard to pull the trigger when it comes to parting with real money and many others often do not know when to buy stocks at a good time. Once again, your entry strategy should be dependent on the style of trading you adopted. In this chapter, we will go through a few general strategies of when to buy stocks that apply to most scenarios.
Indicators Showing When To Buy Stocks
1. Use Support/Resistance Line – Support and resistance lines are the bread and butter tools of all traders. These lines generally refer to a point of the stock chart where the stock price has met with a certain resistance to go up or support to go down based on historical data. For example, if a stock priced at $15 goes down to $12 and based on historical data, it has tested $12 thrice but failed to go down any lower, there is a good chance that the same scenario might happen this time as well. This sets up a good entry position at $12 because it is quite likely that the stock is due for a rebound. Support and resistance lines are key to knowing when to buy stocks, and when to sell stocks.
2. Wait for the Pullback – When a stock is trending up aggressively, it is usual for traders and investors to cash out along the way, this is called a pullback. Traders can take advantage of this pullback to enter a position at a good price then ride the upward trend again after this minor correction. Sometimes, it is good to know what caused the correction, if the correction happened due to fundamental reasons of the company, it might be wise to think twice about entering a long position.
3. Spotting the Big Trend – Spotting a good entry is all about understanding the bigger trend over a longer period of time. For example, if you are looking to buy a specific stock at a specific price, always zoom out and look at where the stock has been trading over a longer time horizon. This will give you a fair indicator about which direction the stock is likely to move next.
When you want to enter a position, it pays to be swift and decisive. Many people fail to pull the trigger because of hesitation. They wanted to wait for an even better entry, but they may have missed the train. To overcome this, you can paper trade and hone your skills before you actually use real money. Once you are in the real market, always have a fixed game plan that you will adhere to no matter what. This will help you be more consistent. Remember, once you have figured out when to buy stocks, go with your technical indicators pointing towards a positive buy, not your emotions.