Wednesday, June 21, 2006

When is the best to time to buy, and when is the best time to sell?

“The darkest hour is the beginning of dawn.” (Xxxx) The market always turns around when it is most negative.

After the market is beaten down by The Bear Raid, many stocks become undervalued. You need to identify these stocks and track them. But firstly, you must know which way the market is heading. If it is still in a downtrend or side trend, you are actually going against the current if you buy. It would be much better if you go with the flow. However, if you are a genuine investor with plenty of cash lying idle, you can start your accumulation.

Safety of principle should be your first priority. So buy only solvent companies with good dividend yield, high earnings per share and efficient & reliable management. Look for companies with good track record. The nature of its business is important. Buy slowly and steadily. When the next bull market comes, you should make aplenty.

There are two strategies you can adopt. One is to buy low and sell high (BLSH). The other is to buy high and sell higher (BHSH). Which strategy to use depends on who you are financially and emotionally? If you have the patience and lots of cash you should BLSH. If you are not so rich and find BLSH unexciting, then you should BHSH. Both strategies are profitable if implemented correctly.

At the bottom, the market can trend sideways for a long time. So if you want to BHSH you must wait for the bottom to complete before you buy. The difficult part of this is that there are many false dawns. You need to study technical analysis and have lots of experience to be proficient. Don’t depend on others to do chart interpretation for you. Some chart analysis doesn’t even mention the volume. A chart without volume is close to being useless. If you want to make easy money, you have to work hard for it. “There is no such thing as a free lunch” is the proverbial phrase.

Now that you know when a good time to buy is, it is vital that you know when a good time to sell is. Premature selling yields little profits. When your stock is in an uptrend, don’t sell and take small profits. Short-term gain is long-term pain. You never get rich taking small profits.

A trend in motion is likely to continue. So let it run its course before you sell. You may be surprised at how high it may go. Generally speaking you should sell when the market is at its strongest. That is, when volume transacted is at unprecedented height or at least heavy. The beginning of the Bear Raid is the best time.

Wait for the durians to drop. Don’t pluck them.

Disclaimer: You are absolutely responsible for your own action. You buy and sell at your own risk.