If you have your own stock portfolio, you might find it difficult to decide when to buy and when to sell stocks in order to make a good profit.
While everyone says "buy low, sell high," that phrase can be misleading. After all, if you buy a stock at $1.00 a share, it jumps to $2.00 a share, and then you sell it, you're going to feel like a dummy if the next day it jumps to $3.00, $4.00, or even $5.00.
So how do you predict the future? When buying and selling stocks, simply follow these four pieces of advice for prediction and your portfolio will go far.
Stock Prices Prediction Number One: Look At A Stock's Momentum
Generally, a stock won't just go down immediately. If lots of people have been buying a stock, the buyers gradually become sellers, it doesn't all happen overnight. The way you can track whether a stock is likely to go down is to look at its rate of growth. If the rate of growth is starting to level out, or flatline, it might be a good idea to consider selling. However, if the stock prices grew a consistently bullish amount over a long period and they show no signs of stopping, stick with the stock.
The best way to do this is to look at a graph of the stock's price. The slope of the graph will tell you whether the growth rate is getting faster or slower. If the growth is slowing, the slope of the graph will be tending toward the horizontal.
Stock Prices Prediction Number Two: Look At Price/Earnings Ratios
The price of a particular stock has more to do with people's perceptions of the company than with its actual numbers. Look up the standard price/earnings ratio for your stock's industry (tech, defense, energy, etc.), then look at your stock's ratio. A high price/earnings ratio means that the stock price is likely to fall, so you might want to consider selling the stock before investors catch on. A low price/earnings ratio means that the earnings outweigh the price of the stock, and eventually investors are going to catch on.
Price/Earnings ratios are one of the lifeblood elements of capitalism in the stock market. You can make money no matter what so long as you invest based on price/earnings ratios, because the healthy value of a company is based not on market hype, but on its actual, tangible, day-to-day earnings. Companies that earn consistently high profits will consistently give you rewards where stock investment is concerned.
Stock Prices Prediction Number Three: Figure Out your Dividends
Sometimes, the stock price of a company doesn't even matter. These stocks, known as income stocks, aren't designed to go up. Instead, investors get dividends based on how much of the stock they own. If your stock pays out a nice dividend, then you don't ever want to sell it, period. No matter how high or low the stock fluctuates, no matter how strange the price/earnings ratio might be. The stock value doesn't matter if the dividend is high. They are called "income stocks" because they're only good if the company is making a profit, or income.
Also, if a previously high-dividend company starts cutting its dividends, you might want to get away. Fast.
However, if the dividend is low, then you need to take any and all other options into account. This is known as a growth stock, meaning that the stock is only good if it's growing. When you determine whether or not it's a "good company," you need to determine whether or not it's growing.
Stock Prediction Number Four: Use Moving Averages
Sometimes it can be hard to determine whether a stock is really growing, or if it's just a single day's blip in the market. The moving average on day X simply means that it's the average of all the stock prices for a set period of days before day X. So a fifty day moving average is the average of all the prices from fifty days ago until yesterday. The basic information is, if a moving average is lower than the current price, keep it. If a moving average is higher than the current price, sell it, because it's only going to get worse.