Well before you actually dive into it I would like you to understand one of the laws that guide it. It is something you already learn on you economics 101 subject in your college days. Stocks or equities are like any commodities or goods that you and I buy in the mall or supermarket. If that is the case, you already know why a price of a new item or food craze is skyrocketing when it is new or the talk of the town. Afterwards when the craze dies down the price suddenly drops.
Yup your right, the law I am talking about is the law of supply and demand.
If you already know how this law works you are very well capable of profiting from the stock market. But how come lots of new stock investors always end up losing at the end of the day? Well one thing is that they may know what the law of supply and demand but they don’t know at what point should they buy or sell. Still nobody has the power to exactly pin point at what price to buy or sell: only a very close guesstimate could be made.
Let’s relearn the law of supply and demand in order for us to make some sensible guesstimates in our stock trading or stock investment goals.
Demand represents how many buyers want to get hold of the stock. As demand rises, price of the stock rises. The price of the stock has to rise because if demand is high buyers will compete with all the people who wants the stock. So when is this useful? This is useful when you are on the other end of the transaction: you are the holder of the stock. As the holder of the stock you need to closely monitor how high is the demand for the stock as compared to what you have invested already. You need to set a point(which most of you might know as Target Price) where you are convince is the best price you can get to profit from what you already have.This price could be static(like 5 pesos on top of you average cost per share or 5% profit per share). When such point is reached, it is now time for you to sell.
Did you get my last word? I mentioned it is time to sell but it doesn’t necessarily mean to sell at the same at that price. You need to look at how high is the demand and until when such demand will be sustained. If you see it still going up for the next few days then make a sell bid a bit higher than your Target price that way you have some little extra for waiting for that stock to reach your target price.
Supply represents how many sellers want to dispose their stock holding. As supply rises, price of the stock drops. The price of the stock has to go down because nobody would like to buy such stock at such price. Holders of such stock are usually in panic mode if there is a sudden drop of stock price due to fear of losing their investment. That is why it is important to set your cut-loss price. It is the price level at which you are willing to sell in order to save your investment’s value.
Now that you know the two lets combined them.
After making all your fundamental analysis and other analysis out there I am pretty sure you already have some list of stocks to buy and hold. Before you buy make sure you understand the supply and demand for that stock. If the stock is dropping in price monitor it closely so that you are able to see until where would it go. Did you ever have a situation where you wanted to own one of the hottest gadget and you are waiting and waiting for its price to go down? When it finally went down you went out and bought yourself one and the next day when you passed by another store the price of the item you just bought yesterday is now half the price you got. That happens open times when we think the stock price sank to its lowest. So you need to monitor that point and when it does its time to buy.
Hold that stock until demand for it comes back but don’t wait too long or else you lose the value of your money over inflation. Set your target price. Better yet buy as many as you can of that stock as long as the price is within the price you bought it(that is what we call cost averaging). As the stock’s price nears your target price it is time to monitor it closely. Listen to rumors and news circulating. Read the business section of the newspaper and get to know what is happening about that company you invested in and how external factors affect its operation and business. Would it make more money or make profit in the near weeks? They they made a good deal with their new contracts? Read along the lines and you will see or notice that such have some effect on the stock’s price. From these intelligence you gathered you can set your selling plan once it touches your target price. As much as possible sell within your target price because once the stock’s price surges beyond that the drop will be sudden once it happens.Lots of investors who held their stocks at these times ended up selling at below cut-loss prices because they thought it would go up more. That is why you got to tame your greed.
After reading I believe that the stock market is not that hard now is it? If you have been trading cellular phones yes if you are one of those who have new phones every other month because you wanted the latest models and thus trade your old unit for a new one you get what I am pointing out). How much more if you are a vendor, trader, or just a plain lover of seasonal fruits like mangga? I bet you understand when is the best time to buy, that is when it is on season.
As I said you need to know what point in time you buy or sell to make or break in this endeavor.