It is a well known belief amongst traders that timing the stock market can be incredibly hard. While that may be true for the most extent, it is not impossible. However, with the right kind of approach, it is possible to time the stock market with a certain degree of accuracy. Now, before we take a look at some of the tips and advice that you can follow to time the market, let’s first take a quick look at what stock market timing actually is.
What is stock market timing?
Also known as timing the market, the process involves making investment and trading decisions using predictive analysis. For instance, if you predict that the market will go up in the near future and decide to purchase a stock to take advantage of the positive movement, you’re said to have timed the market. Similarly, the converse would also apply.
Tips that you can follow to time the market
Here’s a quick look at some stock market advice that you can use to brush up the skills you need to time the market.
1. Use technical analysis
Technical analysis involves the study of charts, patterns, and a host of other indicators to predict the movement of the stock market. Using various technical analysis techniques, investors can to a certain extent predict whether the market or a particular stock is about to rise or fall.
Getting yourself acquainted with the various technical analysis techniques can help you formulate the right stock market strategy that you need to succeed. For instance, candlestick patterns like the shooting star can predict a fall, whereas the three white soldiers pattern can predict a rise. Using these various patterns and indicators, you can place buy and sell trades accordingly.
2. Buy near support levels and sell near resistance levels
Keeping an eye on the support and resistance levels are another great way to time the market. The support level is the level beyond which a stock refuses to fall, whereas the resistance level is the level beyond which a stock refuses to rise.
When the market hits a support level, it usually tends to bounce back up and when it hits a resistance level, it tends to fall down. You can use this data to place entry and exit trades. For instance, if a stock has just hit its support level, you can place a buy order since it has greater chances of bouncing back up, turning your trade profitable.
And on the contrary, you can place a sell order when the stock hits a resistance level since the chances of it rising further are slim. However, keep in mind that both the support and resistance levels may be broken in the event of intense selling and buying pressures.
3. Spruce up your bottom fishing skills
Bottom fishing is a method where an investor tries to purchase a stock whose price is at its lowest, in the hope of cashing in on the profit when it eventually rises. Many financial experts don’t recommend bottom fishing due to the increased risk involved. However, following the right stock market advice, you can make it work to a certain extent.
For instance, only bottom fish stocks that are fundamentally strong but going through a tumultuous phase. These stocks are likely to bounce back up quickly in the near future, thereby giving you a shot at making profits. Secondly, set strict stop losses when bottom fishing. If a stock continues to fall rapidly after you’ve bought it, with no end in sight, it is advisable to get out of the position with a small loss than to stay invested. A stop loss order can help you in this regard.
Conclusion
Due to the unpredictable nature of the stock market, the tips mentioned above may not always work. There’s almost always an element of risk involved. However, with proper stop losses and a judicious stock market strategy, you can prevent huge losses.
Now, whether you plan on trading in stocks or invest in upcoming IPOs, you would need to have a trading and demat account in your name. You can quickly open a demat account for free by visiting Motilal Oswal. The account opening process is simple, can be done online and takes only a few minutes to complete.
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