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When to enter a stock - best entry price points, deciding based on charts

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  • When to enter a stock - best entry price points, deciding based on charts

    Let's first step back a bit to discuss over all strategy.

    When it comes to purchasing stocks, there are two basic strategies: investing, and trading.

    Investing implies LONG TERM. And by long term, I mean - years, not just months. When it comes to investing, the best time to purchase a stock - given that the stock is fundamentally sound, which is a whole separate analysis, is - WHENEVER YOU HAVE THE EXTRA MONEY TO INVEST!

    Yes, that's right. NEVER try to second guess the market when it comes to investing. You may remain on the sideline for months, or years, thinking - now is the time to invest, now is the time to invest, NOW is the time to invest - and miss out on the over all rallies that for the most part, have been in place during the entire history of the stock market. Take most any give twenty year period, and the stock market will show a steady increase in value, most especially for fundamentally sound stocks.
    What is a fundamentally sound stock? What stocks are best to invest in - Free EBAY, PayPal, Business and Law Forums - Ebay Suspension, PayPal Limited

    Now, when it comes to TRADING - different story. The idea here is to get in and get out, with a profit, QUICKLY. How quickly? well, many of my trades last just MINUTES, or just hours, as a stock rises or falls from its entry point and lands me a profit. When it comes to trading, I still like to make a fundamental analysis of the stock, but my reasoning there is more just in case I get stuck in the stock and my trade doesn't go my way quick enough, and I end up having to hold the stock for a bit for it to come back to where I want it to be. In such cases, the chances of the stock coming back are MUCH HIGHER if it is a fundamentally strong stock and not some garbage fad that rose on a pump and dump. (That is of course, if I am long on the stock - if I am short on the stock, I don't mind and in fact PREFER that it is a garbage company).

    But in any case, when it comes to trading, I look at two main factors, based on charts, to determine when to enter the trade:

    1. Where is the over all market.

    2. Where is the stock.

    There are sub-issues to the above two, but in general, I look at these two main factors closely to decide:

    A. Whether to enter the stock at all, and if I enter -

    B. Whether to enter the trade as a long (betting the stock will go up), or a short (betting that it will go down).

    When it comes to the OVER ALL MARKET, at present, my own personal theory is that we are cycling between a 17K DOW and an 18K DOW. This cycle has been going on, to my perception, for at least a year, if not two years. The REASON the market's position in this cycle is so important to my decision about entry point (and whether to enter as a long or a short) is that as we get closer to 18K DOW, or beyond it, the market tends lately to get frightened and look for any excuse to sell off. Let's face it, the economy at present is just not strong enough to justify an uninterrupted stock market bull run, and therefore, as we get too high in the DOW, people get skittish and start selling off, on any excuse of bad news, and we experience what is known as a correction, which is just a fancy name for more people selling than buying.

    Similarly, as we get too close to 17K DOW or even a little below, people start looking for any excuse to BUY and we start roaring on back up to 18K DOW, as people sense bargains and don't want to miss out on what they perceive as the potential profits.

    Therefore, what I always keep in mind, OVER ALL - is - how close are we to 18K DOW, or how close are we to 17K DOW. If we are closer to 17K DOW, I actually become aware that this might not be the safest time to go short, as the drop down is already mostly over, and a roar back upwards is due. At the same time, if we are at 18K DOW, or higher, I am cautious on going long, and if I see a short opportunity, I am more ready to jump into it.

    Eventually of course, we will catapult PAST 18K, and STAY there, but then will begin a whole new cycle, between 18K DOW and 19K, to 18K DOW, to 19K DOW, etc.

    At the same time besides the OVER ALL stratosphere that the DOW occupies, I look at WHERE the DOW is that day. Is it a DOWN Dow day, where stocks are falling off? or is it a day when people are buy buy buying and the DOW is on its way up. And whether it is an up or down DOW day, where in relation to where the DOW started the day and was that day at its peak (or nadir), are we now? All these DOW factors go into my mind as I enter a stock position.

    And then we have - where is the stock, itself. Again, I look at CHARTS - the one day chart for THAT day is the most important, because all stocks follow a sort of cycle during the day which becomes evident, more evident as a bit of the trading day goes on, and then I look at the 5 day chart, the 30 day chart, and even going back further. The more the stock is at an extreme position, either high or low, the more I can decide whether the stock is at a support level, on the bottom, or breaking out to a new high, or perhaps inevitably dropping off from a recent high.

    Now, the above are the BASICS of what I look for as I enter a trade, and then as I remain IN the trade, assuming it goes my way, I monitor and remain mindful of all of the above factors, as I decide when to sell.

    When you hear people talking about "moving averages" and other technical talk to decide whether a stock is at a good price to buy, or sell, in essence, they are talking about WHERE the stock is, in relation to where it HAS been (because obviously, we do not know where it will go, we may only conjecture).

    As you watch a stock and trade it, eventually, you get to learn its patterns. You learn about how it behaves, both when it rises and when it drops. Watch a particular stock enough days, and you may practically feel where it will go on the upside, or when it will drop. Of course, NO ONE may know for sure what ANY stock will do, at least not in the short term, but given enough time, and experience, you will detect the patterns that will allow you to profit.
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