Learning how to buy stocks at the correct point in an uptrend is the key component to consistent and profitable investing.
Once you know how to identify the correct stocks and the optimum purchase price – making profitable investment choices become more mechanical, much more predictable, and certainly more enjoyable. No longer will you need to lose sleep worrying about whether or not you made the right investment or paid to much for it.
Once you have an understanding of the general market trend, also referred to as Market Timing, let the stocks price performance dictate which stocks to buy.
Here are some foundations of how to buy stocks that will create more consistent and profitable investing.
Only buy stocks that are performing better than the market as a whole.
This one technique if used consistently would keep most investors out of trouble. This approach when used in conjunction with a few other analysis techniques can be expected to boost investing profits significantly.
Why should we only buy stocks that are leading the market? What makes this approach work?
Because almost all professional investors want to be positioned in stocks that are outperforming the overall market, and big money from professional investing tend to drive stock prices. If they didn’t take this approach, how would they be able to outperform the market and so be appropriately rewarded with more clients and more personal income?
However, don’t be fooled into taking on an outperforming position and then ignoring it, assuming that the stock will always outperform. Stocks always come in and out of favor – many times independently of the fundamentals. What’s hot today will be cold at sometime in the future, but stocks that outperform do so for a lengthy period of time – certainly in most cases for a long enough time to make some serious trading profits.
Monitor outperforming stocks for an optimal buy point.
This is where patience and consistency is critical in learning how to buy stocks properly. In many cases a stock that is leading the market is most easily identified when it is a little overbought. At that time the stock needs to be added to a watchlist of leading stocks and monitored for an optimal buy point.
We need to watch for a specific pattern and a specific move within that price pattern before buying any stock. Fortunately for us there are only two stock price patterns that work consistently to create profitable investing.
The following chart shows an up trending stock building a new base and then breaking out above it. The most profitable buy point is just as the price is moving up from the base after being held back for at least 3 times. Now the stock is ready to resume it’s uptrend in prices, frequently with significant vigor now that all the sellers are gone from the overhead resistance level.
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How To Buy Stocks – Base breakout buy point
The following chart shows a stock that is making higher highs, and higher lows. This chart pattern is typical of an up trending stock. And indeed if this pattern fails on a stock you own then it should be sold – read more on how to sell stocks. The goal is to purchase the stock just as it turns around from a market pullback and starts to rise again.
How To Buy Stocks – Buy points in an uptrending stock
Buying a leading stock at the right price point is a critical component of any profitable investing strategy. If you learn nothing else regarding how to buy stocks, make sure you apply this strategy in your investing activities.
Example of how to buy stocks for profitable investing.
Just about everyone likes pizza! Here is an example of how to buy stocks properly using the stock chart of Domino’s Pizza, stock symbol DPZ.
How To Buy Stocks – Dominos Pizza – DPZ
DPZ first revealed itself as a market leader around the middle of 2012. If you were astute enough to buy DPZ at that time you would have purchased it for around $30 a share. At the end of 2013 DPZ is now trading at almost $70 a share.
That’s a profit of about $133%!
Along the way DPZ ignored the 10% correction in the broad market and in fact moved up from around $33 to near $40 during this time.
Between first being identified as a leading stock and the end of this chart DPZ could have been purchased at at least 6 pullback buy points as shown on this chart.
In the 3rd quarter of 2013 DPZ appears to be building another base just under about $70 a share. A move up from this base could present another profitable investing buy point.
We’ll need to monitor this stock for that event.