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Published: January 28, 2010
Market timing is one aspect of trading that
investors will squabble about until the end of time. There are
those who will emphatically deny any chance at timing the market
-- or an individual stock’s movements. On the flip side there
are the traders who swear by market timing, claiming there’s no
other proven method for buying and selling stocks.
While both of these methods can be effective, it’s important to
remember this cardinal rule: No matter what your investment
style might be, you should always be sure to buy shares at the
best possible day and time to maximize gains.
For some solid advice on the best time to buy stocks, we turn
to a true expert: Legendary financial writer and market
forecaster Justin Mamis. Mamis literally wrote the book on
trading strategies. Many of the practices outlined in his book
How to Buy are still valid nearly thirty years after it was
first published.
Here are three things to look for before you make your next
trade:
1. The day of the week. Early gains on a Monday tend to
fade; they are usually temporary reactions to weekend news,
Mamis says. On Fridays, a strong close can indicate a healthy
market. Our most important take-away would be to be vigilant when
planning to purchase shares at the beginning or end of the week:
These days can give you a good indication as to what direction
the market as a whole is headed.
2. The time of the day. As a rule, I will avoid the first
half hour to 45 minutes after the market opens when looking to
buy a stock. Unless you’re acting on a fast-moving issue, it’s
best to let the market sort itself out. It’s easy to be fooled
by a stock’s strong early performance, only to see those gains
evaporate by the afternoon. Adding to this, Mamis suggests that
investors should avoid lunchtime rallies as well, since they
tend to be isolated.
3. Anticipate the weak and the strong. Mamis advises to
never buy weakness in the late afternoon. His reasoning is
simple: You could most certainly get just as good of a price
early the next day as investors’ sentiment carries over into the
next trading session. The opposite holds true for strong stocks.
Buying a strong stock at the end of the day is a great bet --
you’re anticipating a gap-up the next day.
As you’ve probably already guessed, market timing techniques
like these are important when you’re trading penny stocks --
especially when you’re searching for short-term gains. That’s
why I tell my readers to never rush into a position. Decide what
price you’re willing to pay, use a limit order and hone your
timing skills. That way, you’ll always get the shares you want
-- without succumbing to the emotional pulls of the markets.
-- Greg Guenthner
Contributor
Penny Sleuth Note: This article originally appeared on
Penny Sleuth. |
