Just imagine the case of an elevator going up. There are many peoples who catch it on the ground floor and use it till the top floor. To earn money in stock market selecting the right stock is just not enough.It is also required to catch it around its ground floor. It is very important to buy the right stock at the right time. So, in this article we will discuss about the points which are favourable for buying a stock. So, that you can buy the stock at the level from where it will show good and fast rise.
ROLE OF FEAR AND GREED
The nature of human beings, regarding the stock market has not changed much. At this point of time also greed and fear drive the stock market. It is a common saying in market “Be fearful when others are greedy and be greedy when others are fearful”. But this should not be confused with the buying of stocks that are going down due to fundamental changes. Or any other bad reason. Buying of stocks of that kind should be avoided. For example: a fraud done by the company came into news or something of that type. The movement of any stock in the market is similar to us climbing the stairs. When we are climbing the stairs we generally take our foot above the stair case but for stability we have to bring it back on the stair. Similarly, a stock often goes above its right valuation, but it comes to the right price some time thereafter. So buying of stock in such cases should be done cautiously.
1. ON THE BASIS OF MOVEMENT:
The movement of any stock in stock market has not been unidirectional. A stock rises above its resistance and makes a new high and comes back again to a point where either it sees a good buying or stability due to its right valuation and other important factors. Every stock makes a chart similar to a mountain where we keep on noticing crests and troughs. The right time to buy a stock is when it sees a routine correction just due to heavy sell off. As market corrections are similar to sale in the brand outlets. In such cases we we can get good quality stocks at a discounted price. Rise in volume of the stock after a good correction provides a good opportunity to buy these stocks. That too at a discounted price.
2. ON THE BASIS OF P/E:
When a stock has a p/e ratio less than its previous values and also at the same time its value is less than the other stocks of same segment. The p/e ratio tells the investors whether a stock is undervalued, overvalued or available at its right value. It is a good call to go for the stock which is fundamentally strong has good order book and is undervalued at the same time. The p\e ratio of the stock is price to earnings ratio. It compares the current price of a stock with the earnings per share of the stock.
3. ON THE BASIS OF P/B:
Just like the p/e ratio the p/b ratio also helps in finding a stock available at right valuation. P/B ratio means price to book value of the stock. Book value means company’s net asset value per stock which is calculated by total assets minus liabilities and intangible assets and then the obtained result is divided by the total number of stocks of that company. The result thus obtained gives the book value of a stock. If a stock has low p/b ratio than its usual value and the value is also less than the value compared to the stocks other companies of same sector.
4. ON THE BASIS OF TECHNICALS:
Some commonly followed strategies to depict the right time for entry on the basis of technical charts are:
- If a stock’s candle makes a low.
- The second candle makes a higher low then the previous one.
- The third candle makes higher low than the second candle.
If this kind of a pattern is shown by the stock, then this is a signal that the downtrend of the stock is becoming weak and the buyers have started their buying in the stock.
5. DURING CORRECTION:
Everyone wants to buy stocks at levels, from which it has the ability of giving very good returns. One such occasion is the time of correction.
Correction is the time when almost all the stocks, including the indices, fall badly. So, buying stocks at these points can bring good profit. But, it might be possible that even after you buying the stock, it may fall more. What do in such cases? How to identify the buy point in such cases?
For finding the point of buying in such condition, one way is to look at the volume of stock. You can check the volume of stock, either by checking its delivery percentage or by checking it’s volume technically.
The delivery percentage of each and every stock is updated on the website of respective exchanges. You can check the percentage there. When you observe an increase in delivery percentage, you can start your buying. But, be cautious and buy in fragmented quantities.
For technically tracking the stock’s volume you can use RSI and STOCHASTIC RSI.
The line plotted in the image of indicator tells about the volume. The value of the line tells about the percentage of volume of the stock. More is the percentage, more is the volume and vice versa.
When the indicator is in the oversold region, and two consecutive green candles are formed. This is a buy signal. Simple meaning of this is that the buying of stock has been started and now the price will increase.
And, when the indicator is in overbought zone, and two consecutive red candles are seen. This is a sell signal. It signifies that selling of the stock has been started and it will fall more.
As, it can be seen quite clearly in the image, that the movement of index is directly proportional to the volume. More is the volume, more is the support to move up. Less is the volume, more is the resistance.
So, these are some points that should be kept in mind to identify the right point of buying a stock. If someone keeps all these points in mind then it will provide a great assurance that trade taken will be profitable.