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Tips to Help You Enter Great Stocks at the Right Time

By: Wyatt Investment Research
Posted: 9/21/2010 2:10:00 PM
Referenced Stocks:

Today's stock market is not like the market of the good old days. In the 1990s, you would put your money in the market and just watch it grow. Not so any longer. Over the last ten years, the S&P 500 is essentially flat.

Today, you have to fight for every percent, and use the appropriate buy or sell order. Properly timing your stock purchases will help you to eke out extra gains, and protect against losses as well.

Here are a few techniques to help get you started:

1. Market order. The standard, default order is called a market order. This simply means that your trade will be executed at the current market price. Market orders are generally executed immediately at the best price offered by a market maker, a firm that is quoting a buy a sell price for stock.

For small caps with low volatility, the market order is an easy one to place. However, with more volatile stocks, you might get some unexpected surprises upon execution. Use market orders if you must buy or sell a stock immediately and the execution of the trade is more important to you than the price of the transaction.

2. Limit orders. When you place a limit order, you state the exact price at which you want to make a purchase or sale. The order will only be placed if that price is available. This is a smart way to buy and sell small caps, because you set and control the price; if the market price varies from that level, the buy or sell order will not go through. However, limit orders are not effective if you want to make the trade immediately , since the trade may not be executed.

3. Stop loss. As the name suggests, the stop-loss order is used to limit losses. This order includes a price trigger that generates a sell if the stock falls to a specified price level. When shares fall to the prescribed price, a market order to sell the stock is executed. With small caps, you must be careful, as the volatility could "stop out" a position based on intra-day volatility. Therefore, use these cautiously, and set them at a price at which you'll definitely want to sell the stock. For hands-on investors watching the market, stop losses are less useful, since you're always watching your positions.

When you're ready to jump on a stock there are three main types of analysis I like to do:

1. Review fundamentals. Don't expect to draw a conclusion about a company as if it were locked at one point in time. 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.

2. Follow financial trends and look for leveling-out of those trends. 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 buy and sell decisions before the change becomes obvious to everyone else.

3. 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.

I just used the above 'rules' to help pick up a high yielding small cap stock that is paying a nine percent dividend right now. This company went public in 2006 - and has paid a dividend every quarter since its IPO. Already it has paid out $5.36 in dividends, and it made it through the recession without cutting a single payment.

Right now this compay's quarterly dividend is yielding over nine percent when annualized. I believe it is a screaming buy. It generates cash flow from more than 8 businesses (it just purchased its eighth) - each of which is a leader in their respective niche markets. It's one of the single best dividend paying stocks out there, in any market cap class.

If you'd like to learn more about this stocks, click here and you'll be able to sign up for a risk-free trial subscription to Small Cap Investor PRO . You can check out this company in my recent Special Report that includes two high yielding small cap value stocks.