One important rule for investing in the stock market is to buy low and sell high. However, you can’t predict when the stock prices will go up or down. While there’s no definite way to time your trades perfectly, there are some tips for buying stocks that can help you make better decisions.
Here are the top 17 tips for buying and selling stocks, straight from the pros:
1. Don’t Be Influenced by Small Changes in Stock Prices
Dr. Tenpao Lee, Professor of Economics, Niagara University
Use trading ranges to view your decision-making so that you will not be bothered by small changes in stock prices (i.e., you will not be able to sell at the highest or buy at the lowest). You should feel comfortable that the market price is within +3% of your buying or selling prices. Also, get rid of stocks with uncertain futures, like traditional retail stocks.
2. Don’t Try to Time the Market
Eric Rosenberg, Founder, EricRosenberg.com
One big mistake many investors make is trying to time the markets, meaning buy when stocks are on the way up and sell when they are on the way down. While this is a great idea in theory, it is almost impossible to get right. If you sell when stocks go down, you could miss the upswing when they recover. Over a long period of time, the S&P 500, an index that tracks 500 of the biggest US stocks, has returned about 10% on average. If you buy and sell regularly, you will likely get lower results than the market.
3. Buy When You Know More Than the Market
Adam Fortuna, Owner, Minafi
The absolute best time to buy a stock is when you know more than the market. Knowing more is extremely rare, but it can happen. If you’re a movie buff and saw Avatar in IMAX, you might have been amazed by the new technology and invested early (+1200% over seven years). If you fly often, Southwest’s customer service may have dazzled you (+800% over six years). Always be on the lookout for services and products that you love and stand a chance of becoming market leaders. If you can make that realization and invest before the market as a whole does, that’s the right time to buy.
4. Invest in Index Funds Instead of Buying Individual Stocks
Eric Bank, Founder, EricBank.com
It is almost impossible to beat the market average gains by investing in individual stocks. Without inside information, you are at a disadvantage to corporate insiders, hedge funds and other heavy hitters. It’s best to invest in index funds that charge a minimal fee (<0.15%). You should include index funds for alternate asset classes. Not only do you achieve instant diversification, you are more likely to stay invested in bear markets, because you are not underperforming the averages.
5. Determine Your Stop Point & Profit Target
Danielle Shay, Director of Options Trading & New Trader Specialist, Simpler Trading
Before you enter any position, you should know where your stop is. What method do you use to place your stop when your trade or investment is not working out? Just as you know where you’ll exit when things go wrong, you should also know where you want to exit when the trade is moving in your favor. This takes out the emotional aspect of deciding where to take your profit when things are going well.
6. Don’t Let Your Emotions Affect Your Decisions
Ian Cooper, Stocks Analyst, Trading Tips
Far too often, we buy or sell a stock because everyone else is. We panic-buy or panic-sell thinking others may know something we don’t know. Unfortunately, such herd mentality can be quite costly to your portfolio. Make sure to have a solid plan in place. Leave your emotions out of your investment and stick to your plan.
7. Know That Stock Picking is Not Easy
Marguerita Cheng, Chief Executive Officer, Blue Ocean Global Wealth
Choosing the right stocks to buy isn’t that simple and easy ― even the professionals may not always accurately identify the category winner in various industries. Mutual funds and Exchange Traded Funds allow for diversification. Make sure to avoid concentrated positions or overexposure to a particular company or sector. Also, try not to time the market ― it’s the time in the market which is important, not necessarily timing the market.
8. Use Technical Analysis
Chris Skordis, Market Analyst & Writer, TodayTrader
The best thing a beginner trader can use is support and resistance. With support and resistance levels, even beginners can predefine profit-taking points. With each strong resistance level, take a percentage of your investment out and with each strong support level perhaps consider putting a percentage of your investment back in. The hardest thing in trading and investing is keeping your emotions out of the game. If your stock is rising, euphoria can cloud your judgment and you’re left holding it all the way to the top ―
and back down again. Remember, It isn’t considered profit till you cash it out.
9. Don’t Panic During Short-Term Fluctuations
Leah Hadley, President, Great Lakes Investment Management, LLC
Expect short-term market fluctuations and do not overreact when it happens. Headlines will often drive markets in the short term. However, the longer-term value of the company is created based on the company’s ability to generate value for its shareholders. If you believe in a company’s long-term strategy and there has been no fundamental change, do not trade based on short-term noise in the market.
10. Use a Stock Screener
Barry David Moore, Certified Financial Technician & CEO, Liberated Stock Trader
The stocks that are best for you really depends on what you want to gain. Do you want to earn a regular secure income in the form of dividends, or do you prefer to increase your investment through the growth of a stock’s price? These investing methods are called income investing and growth investing. In using either method, you would want to use a stock screener. This enables you to filter through thousands of stocks according to what you are looking for. For an income strategy, you would filter on stocks with a dividend of 2% or more. With a growth strategy, you would filter for stocks with increasing revenues and earnings per share. One great example of a stock that pays dividends and has high growth is Microsoft (Ticker: MSFT) which has 14 years of dividend growth and a 5 year stock price growth of over 100%.
11. Determine Your Goals Before Choosing Stocks
Eric Solis, Founder & CEO, MovoCash
Most follow a when, what, why model of investing ― meaning they focus on timing the market. Flip this upside down and start with asking yourself why am I investing. Let the “why” point you to “what” to invest in and then since nobody can predict the future, the “when” becomes less relevant.
12. Diversify Across Different Industries
Lou Haverty, Chartered Financial Analyst, Financial Analyst Insider
When choosing stocks, it’s important to be diversified. Rather than invest in a single stock, you might want to look for at least 10 individual stocks within different industries that fit your investing criteria. It’s also a good idea to look at all of your various investments as a whole. If you have other retirement accounts invested in broadly diversified index funds, then it might not be as big of a deal if you invested in one or two stocks that only represented a small percentage of your overall investments.
13. Stay Updated on the News
Saket Maheshwari, Personal Investing Expert, HealthLabs.com
Things that affect the news cycle have a ripple down effect on the stock market. For example, when Trump’s administration was talking about increasing infrastructure, stocks for infrastructure went up. If you’re paying attention to global news and politics, you’ll be able to predict which stock should be invested in.
14. Do Your Research Before Buying or Selling Stocks
Matthew Gillman, CEO, SMB Compass
Before you buy stocks, determine what your objectives are. Talk to market professionals and other investors about their strategies. Make sure to do your research. Investing in the market should be a long-term strategy, not a short-sided one. Don’t invest money that you need to live on. If the market goes down and you’re forced to sell your positions, you may have no choice but to take losses.
15. Study Charting Techniques
Tim Biggam, Options Analyst, Trading Tips
To help determine your entry and exit points, you can use technical analysis and charting for the stocks that you consider buying or selling. This strategy is great for determining both a target profit area and a stop loss. It’s important to be patient and to always keep an eye out for opportunities.
16. Don’t Try and Pick Stocks if You’re Not Sure
Brian Davis, Co-Founder, SparkRental
Unless you are an experienced stock investor, don’t try and pick stocks. Instead, simply invest in a handful of low-cost index funds ― ideally commission-free funds managed by your broker (Schwab and Vanguard offer good ones). If you’re just starting out, begin with just four types of funds: one that tracks large-cap U.S. stocks, another tracking small-cap U.S. stocks, one tracking international developed nations’ stocks, and one for emerging markets. That gives you enormous diversification without having to actually do any research or hand-wringing.
17. Know Your Cost
Dock David Treece, Personal Finance Analyst, Fit Small Business
One of the big things that people forget about buying and selling stocks is that it costs far more than investing in other assets like mutual funds or ETFs. Because of the costs involved with trading, it’s important that people know exactly how much they need to make on a trade just to recoup their trading costs. Once you know how much you need to make just to cover your costs, you may want to rethink how stock-trading fits into your financial plans.
There is no perfect formula to beat the market ― but there are tips for buying and selling stocks that can help you become successful in your trades. No matter what you do, make sure you don’t let your emotions rule. Also, be sure to use the above expert tips to guide you when you’re buying and selling stocks.