“Time in the markets beats timing the markets.” This quote can be effectively applied by fundamentalists and long-term investors. But it may not be of everyone’s choice. Spending time on the market will guarantee profits but that might take time.
For those who want to make quick cash, the idea is to buy low and sell high. One must act quickly looking at the key facts and press releases.
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Things to consider in making buy sell or hold decisions:
1. Increase in Sales
In the press release or quarterly reports or annual reports look to see if the company is increasing its sales. If the growth in sales signals long-term growth or sustainable growth, you might want to buy or hold onto the stocks. On the contrary, if the growing sales is a one-time event holding too long is not a good idea.
The comparison in sales must be done with the last quarter along with last year. Small-cap companies shall have at least 10% growth in sales while large-cap companies 3% to interest the investors.
2. Stock Buyback
Share repurchases are often the signs that the company’s progress is good and the management is confident about the company’s better performance in the upcoming days. Some pros of stock buybacks are:
- Positive confidence signal for investors.
- Stronger financial statement of the company.
- Avoids poor investment decisions.
Share buybacks are tax-effective since the investors don’t need to pay taxes until the shares are sold. Share buybacks are certainly profitable in the long run. So one can confidently hold the stocks if there is stock buyback.
3. New Products
Whenever a company releases a new product, there is either an opportunity for large profits or losses. If the new product does well and becomes a winner it will create wealth for the investors. But not every product can compete in the market. Thus it is necessary to keep an eye on how the new product is performing before deciding whether to hold or sell the shares.
4. Technical Indicators
A glance at the stock charts could help investors make trading decisions.
Is the stock trading above or below moving averages (eg. 20 days for short-term, 50 days for mid-term, and 200-days for long-term moving averages)? Check whether the trading volume is higher or lower. High trading volume generally confirms the ongoing momentum. If the stock is in an uptrend with increased volume is a signal for bullish momentum.
Some other technical indicators like Bollinger bands, or the MACD combined with the moving average indicator are very useful in determining the stock’s price.
5. Interest Rates
The interest rates of banks have a direct effect on stocks. High-interest rates can lead to bearish sentiment in the market. On the contrary, lower interest rates can boost the stock market to gain a new high.
Interest rate is a reflection of liquidity available with the banks. Thus high liquidity means low-interest rates and struggling liquidity suggests high-interest rates. If the liquidity is not a concern and the interest rates are low the investors can get loans cheaply and more by investing in the stock market. Thus it is essential to keep an eye on the liquidity and rising or falling interest rates of banks.
6. Other Factors
Higher taxes, consumer behavior, and industry-wise downturn may have a huge impact on share prices. When a particular sector faces a downtrend, bearish sentiments will arise for all existing companies in the sector. Even if a company is doing great with sales and with strong financials might not attract investors for a long time until the sector recovers. On the other hand, in a sector with bullish sentiment, any company might attract traders with many stocks P/E ratios being high.
Similarly, the speeches, policies made by governing bodies impact the stock along with the technical and fundamentals of the company.
Some Reasons to Sell
- To adjust portfolio
- To Free up capital
- If the stock hits the price target
- Change in fundamentals
- Tax reasons
- Technical signals
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Acting on Your Trading Strategy (Trader Vs. Investor)
It is necessary to know and realize whether you are a day trader (buy and sell stocks daily) or an investor (buy and hold). Both types of trading strategies have pros and cons but knowing one’s position and sticking to a certain strategy will help you withstand the challenges of trading.
A day trader might want to take advantage of small fluctuations in the market to gain financial profits. But these small fluctuations in the market shouldn’t worry an investor. An investor’s main strategy is to buy a financially sound company and hold the stocks until their fundamental changes (buy and hold).
Based on your investing and financial goals you can buy, sell or hold the stocks. One might have to think on their feet and make snap decisions to buy, hold or sell the stocks. The above-mentioned points can guide you towards making better decisions more often than not.
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