February 20, 2020, 9:30 am

Is There A Perfect Price to Buy Stocks? (How to Trade)

by: The Financial Blogger    Category: Investment, Market and Risk
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Trading publications and the media are inundated with comments about “catching a stock or asset at the right price.” There is an obsession with share prices across the industry with a fair share of opinionated trading experts, analysist and seasoned investors talking about share prices.

For instance, Tesla’s stock price has been the subject of debate as at the time of writing, with key figures like Warren Buffet dismissing it as a distraction. In case you haven’t been watching the market, Tesla’s share price (TSLA) has more than doubled in the recently and is currently trading at over $800 per share.

Is there a perfect price to buy stocks? This post aims to demystify stock trading using share prices and how you can filter the noise to make some gains.

1.    The Perfect Buying Point

One of the best and safest strategies you can use to identify good stocks involves defining a buying point. The smartest investors often take time to watch a stock’s movement and only jump in when there is a rational and natural upward trend.

For instance, stock A has been trading on all-time highs for several weeks but takes a sudden tumble. A novice investor will jump on the stock as soon as they see its declining price. This is  to their detriment. A smart investor, on the other hand, will wait until the stock has reached a point where it starts to recover. This is a perfect example of stock trading using stock prices.

Identifying the perfect price to buy stocks requires a higher degree of patience and independent thinking. However, this is usually not the case as a majority of traders tend to rally behind a trend or trade based on emotion, external opinions, greed or fear. Oddly, it has always been agreed in trading circles that the period after a readjustment or correction is the best time to purchase a stock.

2.    The Importance of Setting Your Price

How would you know if it’s the best time to buy a particular stock if you don’t have your price? You would be surprised to know that many traders buy stocks without setting their prices.  Setting your price means analyzing the asset and estimating its ideal price based on your findings. That way you would know when a price is unreasonably high or when it’s below your value.

As a practical example, experienced traders would probably shy away from Tesla’s stock at the moment. This is because it seems to be way above the “consensus price” as many would agree. Compared to close competitors and the company’s financials, it could be hard to justify its price. Of course, astronomically high stock prices also attract another category of traders known as short-sellers.

You can also take advantage of the derivatives market to maximize profits when you are confident about your set price. For example, you can purchase options on a stock that you know is either undervalued or overvalued and potentially make significant gains when the price corrects itself.

3.    Long Trades Always Win

It’s possible to make small gains in the short-term doing day trading. However, real profits can only be made on long trades. Some stock prices do take ages to move in either direction. Blue chips and some tech stocks are known for this type of movement (think Coca-Cola, IBM, PepsiCo, GE and the like). Buying a stock at a perfect price point also means being able to hold them until they hit the perfect point so you can sell.

4.    Independent Thinking While Buying Stocks

Sometimes it’s best to mute all the noise and take the time to analyze the market. Listening to analysts, news, experts and other traders may drive you into adopting the herd mentality. Instead, it would help if you took the time to peruse the company’s reports, read their press releases, scrape the internet for new stories and also read the indicators. That way, you will be approaching the price with a clear understanding of its movements.

In A Nutshell

Buying and selling stock using price movements is possible. However, you must be ready to do your homework and know what a perfect stock price is when you see it.

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