STOCKS - When do I buy?

STOCKS - When do I buy?

 
 
Security prices cycle up and down, even within long term trends. If you plan to hold an investment for years, you will be less concerned with the daily, hourly, even minute by minute price moves that are crucial to the short term trader. Even long term investors, however, should monitor prices, perhaps on a daily or weekly basis, so as to add to their positions when prices are lower in the cycle.
Price and volume charts are the most helpful guides to understanding these cycles. The closing price for each successive time period is plotted, left to right. The vertical scale gives the price, from lower to higher. Some charts also show the opening price and the lowest and highest prices during the period.
The jagged line which connects the closing prices shows the stock to be climbing, falling, or moving sideways. If you compare hourly, daily, and weekly charts, you will find similarities, echoes, in the patterns of price movements. Technical analysts focus on these patterns, believing that the market has already evaluated the fundamentals of a security and that history, while not a perfect predictor, is the best guide to what’s coming. They invest in patterns.
Each stock, bond, future, or index has its own trading rhythm. A chart captures this best. If, after you buy a security, you plot its daily  chart (by hand on a piece of graph paper or by using a computer), you will become sensitized to its rhythm; you will know when it is trading normally and when it is not. This feel for your investment will make its normal ups and downs less stressful.
Volumes (numbers of shares traded during a period) are usually represented beneath the prices by vertical lines rising from a common base, higher lines for higher volumes. Price/volume charts have an urban, city skyline, look.
Volume is an important technical indicator. Increasing volumes together with increasing prices is a good sign. Increasing volumes with decreasing prices is a bad sign (unless you are short).
If you want to buy more shares of a stock whose price is falling with large volumes of trades, you should probably wait until the volumes decrease significantly. This usually indicates that the selling pressure is lightening. Conversely, if you want to sell a stock that is rising on increasing volume, you should probably wait until the volume lessens, indicating that the stock is running low on buyers and that the price is likely to  level or drop.
You will have noticed the “probables.” Nothing is sure in the market. There is a saying that, “No one but a liar ever bought at the bottom and sold at the top.” If, on average, you can buy in the lower third of a price cycle and sell in the upper third, you will do very well.
Analysis helps, but trades rarely work out just as you expect. Uncertainty and imprecision are ever present. Some investors live with this naturally; most adapt to it; but some want nothing to do with it. The latter should invest in short term treasuries and spend their energies making and saving money in good ways, rather than worrying about the market.
When you have decided to make an investment or a short term trade, you must make an equally important decision. How much to buy?