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Knowing When To Buy and Sell Stocks
| Guest post by: Rob Bourne |
Article Overview: A successful system for knowing when to buy and sell stocks
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Free Download - How Many Buckets Do You Need for Retirement? By Rob Bourne |
Knowing When To Buy and Sell Stocks
There are many different strategies to use when you are
investing or trading in stocks. The important thing is that you have a strategy
and stick to it. It doesn’t matter whether you are a short or long term
investor – discipline is the key to success after picking what stocks to invest
in.
What you also need to understand is that there is no perfect
system out there. Any system you use will have its limitations but at least if
you have a system you have a set of rules to apply for knowing when to buy and
sell.
A system I use regularly for knowing when to buy and sell
stocks is based on 3 rules and makes the task of buying stocks easy to use and
understand.
The 3 rules to the system are:
1. Only buy when the volume is above the long
term average.
It’s important when buying stocks that you buy a liquid
stock. That is a stock that you can sell easily when needed. To do that you
need to make sure there is good consistent volume. Many investors will trade on
volume indicators alone, particularly for smaller stocks as market announcements
will often follow increased activity in volume. If you think this is insider
trading, then you are right and its alive and well and happening every day at
all different levels.
You will need a chart to apply this rule and all that is
needed is to apply a long term average to the volume chart. If you are a short
term trader then applying a 100 day average is a good indicator. The rule is to
only buy when the price is above the 100 day moving average line.
2. Only buy when 3 consecutive higher ‘lows’
have been reached.
To apply this rule, you need a bar chart showing daily open
and close prices. The great thing about a bar chart is the information
contained in each bar. Each daily bar will have a high and low representing the
high and low prices reached during the days trading. It also contains 2 horizontal
dashes, one on the left representing the opening price and one on the right
representing the closing price.
The rule to apply here is to only buy after 3 consecutive
bars show a higher ‘low’. The low is the
bottom of the bar, and not the lower horizontal bar or closing price. What we
are looking for here is to only buy on an upward trend. The number of
consecutive days can be changed to your preference but 3 days was also used
successfully by Nicolas Darvis in his famous ‘box theory’ which he used to make
over $2 million.
3. Only buy when the price is above the 100
day moving average.
The 3rd rule is to apply a 100 day moving average
to you bar chart. A 100 day average is fine for most investors except perhaps
for day traders who may want to use a shorter moving average.
Again, the rule is simple to follow. You only buy when the
price is above the moving average. The idea is to only buy stock when they are
in an upward trend. You do not want to buy when they are in a downward trend.
That’s when you sell.
The rule for selling is also simple. In addition to the 100
day moving average you apply to your bar chart, you also include a 10 day moving average. This
line will reflect any price movements faster than the 100 day line. The rule is
to sell if the price falls below the 10 day moving average.
Remember, the secret to knowing when to buy and
sell stocks is to be consistent in
applying your rules and understanding that they will not work every time, but
it’s a whole lot better than not having any system at all.
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Article Tags: buying and selling stocks, stocks
Referred by: http://jaykubassek.com
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About the Author: Rob Bourne RSS for Rob's articles - Visit Rob's website Rob Bourne has been involved in the financial services industry for over 35 years. As a practising financial adviser he focuses on the need for practical and down to earth financial education. The aim is to educate people through financial education so they can take control of their own financial future. Visit Rob's website here for more information on business opportunities, investing and financial education. Click here to visit Rob's website   Honey Ive lost my Job and Why Self Employment is on the Rise Retirement Strategies for the Younger Generation Cruising for a Bruising Or time for a Financial Management Course Understanding the Need for Financial Education or growing old and poor on lottery tickets How Many Buckets Do You Need for Retirement |
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