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Stock Market: When to buy stocks and when to sell them?

Updated: 6 days ago

Identify quality stocks, identify market dips, set goals, and know how to take capital gains and losses is a key part to sustain in the stock market. Here are our top tips when to buy a security and when to sell it.

The first step is to identify a stock that you want to put in your portfolio for its qualities: a positioning in a buoyant market, attractive growth prospects, a standard distribution policy, or even a speculative interest if, for example, the company in question is a takeover target.

You must always have in mind the catalyst (s) that will drive up a stock market price.

Ideally, it would help if you bought security whose valuation multiples are not too high. But that's ideal ... Very often, quality values ​​come at a price. Financial markets are more expensive than a decade ago. The indices climbed thanks to the ultra-accommodating policy of the central banks, more than by the growth in profits.

This does not mean that there are no more opportunities or discounted securities in which to invest in the stock market, but more excellent selectivity is required to purchase shares.

A tight valuation is not necessarily a problem if the growth outlook justifies it.

Buy in small quantities

As a precaution, you can watch for consolidation or a market bottom to place your buy order. The graphical analysis will help you determine intervention thresholds. But by dint of waiting too long, the risk is to miss an opportunity.

Another option may be to buy in small quantities and then complete your line in the following weeks or months.

And when to sell, then? On the stock market, you must know how to take capital gains. Sometimes it is more complex than buying well.

When an investor sees one of "his" stocks appreciate, he will tend to expect more and more and may even be tempted to strengthen his position! We must fight against this bad reflex. You haven't earned anything until you sell.

Set goals for yourself. A gain of 10-15% over twelve months in a stock market environment like the one we have known for five years remains correct.

You can be greedier on specific titles (typically the average values). But don't forget that it is by realizing capital gains that you will be able to invest in other stocks and that the value of your portfolio will increase.

Don't hesitate to sell

Of course, you won't just get great deals. If a stock starts to drop because its results are below expectations, you must wonder about the reasons for this disappointment.

A mishap in the life of a listed company is always possible without necessarily calling into question its prospects. You can then give the title in question the benefit of the doubt and keep it in your portfolio.

But if the disappointments are repeated too often, you must ask yourself questions, not hesitate to leave a file, and take your loss.

The hardest part, if you are starting, will be getting started with graphical analysis. But after three or four months of training, you should have mastered this technique properly. On the other hand, you will need more time to control your stress and maintain the plan of action developed in all circumstances.

Golden rules

  • If a doubling of one of your shares, it may be wise to sell at least half of your stake.

  • Also, limit your losses and sell a stock if its price drops 8-10% below the initial purchase price. If the price continues to go down, you can always buy back at a better price.

  • If you have made gains, use stop-loss or stop-limit orders to protect yourself from a possible sudden drop.

  • Regularly ask yourself the question: "Would I still buy the stock at its current price?" If the answer is no, it's time to take your profit.