After reading yesterday's article of
Small Cap Investor Daily
How to Lock in Profits and Limit Losses
, you now know the appropriate time to use different types of buy
and sell orders for stocks.
Armed with this knowledge it's time to discuss the best
to buy or sell a stock. I have 6 tips for you in today's issue.
First, remember to keep these two things in mind when you make
1. First select stocks you believe offer the most value and
2. Second, you need to time your buy and sell decisions.
Let's assume you've already done step one. For step two,
remember that to some degree use of limit orders and stop-losses
will help to protect you from big losses. But due to the
higher-than-average volatility of small caps, you need to be ready
to spot other trends that will impact the success rate of your buy
and sell decisions.
Here are six useful tips that will help:
Set profit goals and bail-out points.
Doing this gives your investment strategy some structure. Buy when
trends meet your criterion. Either the price meets your
pre-determined range, a trend-line changes direction, or there is
some change in the broader market. There are virtually hundreds of
criterion to chose from, but remember to use ones that support your
particular profit goal. Then sell when you reach your predetermined
profit yield - or when the stock price drops to your bail-out
Decrease your holdings after a big run-up.
Often stock prices rise and you reach your goal, but you want to
believe that the upward trend is going to continue. You can cut
potential losses by selling a portion of your holdings, and letting
the balance ride. Your investment time horizon will dictate this to
a large degree.
Use trailing stop orders to control potential losses.
Losses happen a lot faster than gains in most cases. Carefully
watch fundamental and technical trends, and look for early signals
of change. Protect yourself by using trailing stops to set a floor
on your potential losses, or to lock in your predetermined
Review fundamentals regularly.
Don't expect to draw a conclusion about a company and then never
look at it again. Everything changes. Just think of the company
where you work - surely things were different a year ago, and there
are plans to change things in the coming year. This is especially
true with small caps, where growth trends can be fast. It is
critical that you monitor the fundamentals in the companies you
invest in for potential game-changing developments.
Follow financial trends and look for leveling-out of those
Every trend levels out at some point, even the ones we wish could
go on forever. Be on the lookout for subtle changes in revenue,
earnings, and the other trends you monitor. You want to make your
the change becomes obvious to everyone else, because by then the
price decline has most likely already occurred.
Track moving averages and identify buy and sell signals.
The use of moving averages is probably the strongest of the
technical tools you can use. The averages offset short-term price
volatility and show you what is likely to occur in the coming weeks
or months. Changes in the moving averages can improve your timing
of buy and sell decisions and should be watched closely.
You can use these simple tips to help you beat the pros on Wall
Street. Despite what many analysts would have us believe, they
simply don't have the time to follow the small cap universe all
that closely. It's a time consuming endeavor, and the reality is
that most analysts are covering a number of stocks. If you pay
attention you can get in, and out, of small cap investments before
the Street does.
If you're serious about beating Wall Street at
the investment game and want more of my top ideas, I encourage
you to try my
Small Cap Investor PRO
service. Just click here to start your no risk trial membership
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