How do you decide when to buy and sell on an investment?

Answer 1

The answer to this question is dependent on your investment objectives.

• Long-Term Investments: If you seek long-term investment strategies, you should not actively buy and sell investments. You should instead concentrate on asset allocation, buying stocks, bonds, and other financial instruments commensurate with your time horizon and investment objectives. Once you set that portfolio up, you should generally ignore your investments until you need to access the money, checking in once every year or so just to rebalance your asset allocation.

• Short-Term Investments: The following answer is for active traders. Note that it is not recommended to trade long-term investments (such as your retirement account) actively.

BUYING: Buy when you feel an security or sector is undervalued. As an individual investor, this is difficult to time, unless you have reason for a real conviction on an asset class.

Something to keep an eye on is the "smart money" (hedge funds) and the "real money" (pension funds, mutual funds). You can usually get a sense for what they are doing from financial journals.

SELLING: When you sell depends on the investment and your objectives. However, experienced traders rely on disciplined principles: stop losses and profit-taking. Getting greedy (or believing in yourself too much, even when the market goes against you) causes a lot of lost trading profits.

Assuming you are looking at relatively short-term invesments, you should always have a profit target and stop-loss.

It is best to illustrate by example.

Assume you have $1000 to trade. You believe Crude Oil will rise to $100/barrel by December 2006.

How much are volatility are you willing to risk? You believe oil will rise by more than 50% from a current price of $65/barrel by year-end 2006, but you don't want to lose more than 25% of your initial invesment.

You decide your STOP LOSS is $750 ($1000 - 25%*1000 = $750). This means that when your initial $1000 invesment in crude oil falls to $750, you "stop yourself out", i.e., sell all your oil.

This is the hardest part of trading: stopping yourself out on a "sure thing". But this discipline is extremely important, as it forces you to reevaluate your initial view.

In this example, perhaps you thought oil should trade at $100 per barrel because of the ongoing geopolitical instability in the Middle East. But perhaps a major new oil source has been found in Canada in the meantime. Stopping yourself out forces you to think about whether your motivations for entering a trade still apply.

Under these new conditions, perhaps it makes sense for you to reallocate your $750 to Canadian oil and exploration companies.

On the other hand, assume oil hits the $100/barrel target you initially set. You should TAKE PROFITS. Greed is the downfall of the trader. Once you start making money, it is hard to believe that it will end (look at the tech boom and subsequent crash in late 90's tech stocks).

PROFIT TAKING and STOP LOSSES are the two most difficult and important trading target to set. These are numbers you should decide for yourself, based on your risk tolerance and investment objectives.

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According to me the Right time of investment is when the market is getting down, as you will be getting the share on lower price and you will be get the profit even if the market get up 5% also.. because your capital amount was lower then the current price.

and if still market is getting Down day by day. Get the more share to increase the volume of your share and cover you risk.