When you’re new to investing, it can be difficult to figure out when it’s the right time to buy stock. When market prices are low? When they’re high? Is there even a “right time” to purchase stock in the first place? Many would-be investors resist trading because they believe the window of opportunity for buying stock is too small.
Such fears have not held back the market, however. As of 2021, the global market cap represents an increase of over 300% compared to 2009.
New traders who don’t yet have much experience with the stock market often make the mistake of waiting around too long for better prices.. The problem is that, often, that perfect moment never comes along.
So how can you avoid falling into that trap? And when should you purchase stock? Read on to find out.
The best time to buy stock
Historically, there have been several periods of great capital followed by devastating market crashes. We’ve seen it time and time again; for example, in the crashes of 1929, 1987, and 2008. At the time, these events seemed absolutely catastrophic. But now with hindsight, it can be seen that even these huge crashes were not completely world-shattering! Each and every time, the economy has managed to recover.
For public companies, it’s very important to demonstrate their growth potential to their customers and shareholders. With every new financial year that rolls around, businesses are always looking for ways to improve their performance and see better results.
In short, a company’s main objective is to grow. You need to make sure that you are well-placed to grow alongside them. Read on for four top tips on how you can keep up with changes in the market and learn to make good investment decisions.
Trading when the market opens
In the morning, as the market opens, many traders are eager to begin trading. But when it’s so early and the bell marks the start of a new trading day, prices and volumes will rise considerably. This is because, during this time, the market looks at all news releases and events since the previous day’s closing bell. Therefore, volatility is more likely.
These times can be used by skilled traders, but a less skilled one will have a hard time discovering the right patterns and trying to make some profit. On the other hand, skilled traders should be able to recognize these patterns and place successful trades.
Day traders with more experience tend to take advantage of the very first 15 minutes of the day because this gives them some of the biggest trades on the initial trends.
Professional day traders find the first hour of the day to be the best for day trading. So, from 9:30 AM to 10:30 AM, they have the chance to make the biggest moves. Around 11:30 AM, professional day traders usually stop trading. This is when the volume and volatility go down.
Best trading time of the day
The best trading time of the day to buy stocks is when the regular session takes place. This is because the market is the most efficient and active during this time. At the same time, it’s best to be aware of which hours are the worst to trade. Usually, the regular session’s first and last hours are the worst hours for trading. They have a lot of volatility, making trades risky.
Frequent traders may also trade during extended hours. Pattern day traders, respectively people who make four-day trades over five working days, are people who can benefit from extended-hours trading.
Trading during the last hour
Trading during the last hour of the day is considered extremely risky. This is because there is more volume and volatility, and thus more risk is involved for the trader.
According to the usual intraday stock market patterns, the last hour is very similar to the first hour of the day. There are big moves and sharp reversals. In general, a day trader will try to close positions or join late trades from 3 PM to 4 PM. When they join late trades, they hope that this will have a positive impact on the following trading day.
Best days and months to trade the stock market
Some traders think that certain days are better for trades on the stock market than others. According to them, Mondays are the best days, as they believe in the Monday effect or weekend effect. Many think that because lots of bad news get released during the weekend, this affects the stock market, making it drop. At the same time, the Monday effect has begun to disappear.
As for selling stocks, Fridays are considered the best days.
Similarly, some people think that certain months are more convenient for trades on the stock market. January is often the choice for buying stocks because people believe in the January effect. December is also great for purchasing small caps or value stocks.
For selling stocks, traders prefer September and October.
1. Stick with what you know
One of the most crucial bits of advice for new investors is to invest in industries you already have some knowledge of. For example, if you’re interested in fashion, perhaps you should consider buying stocks in trendy, promising clothing brands. If you’re interested in video games, perhaps you could purchase shares in video game developers who seem to have a promising future.
If you know something about the industry you’re investing in, you’re bound to have a more enjoyable time. It will also keep things simpler for you since you won’t need to learn the basics of the industry before being able to jump in and start trading.
2. Research the company
Once you’ve decided on a company you’re interested in investing in, you should make sure to set aside some time to learn a bit more about it before placing your funds. After all, a lot more goes into a stock than just the current share price and potential profits in the future. You should consider a broad variety of factors when investing.
Here is a short list of things to consider when you’re researching a potential stock investment:
- The company’s products and/or services. Understand what needs the company fills in the market and what target audience they cater to.
- The competition currently on the market. It’s also important to keep in mind the competition the company may face.
- Management style. How a company is managed has a significant impact on its performance in the market.
- Company profits. Of course, being aware of the earnings the company makes is crucial when you want to know whether or not they are worth investing in.
3. Set goals and gain experience
Another important thing to remember is that you won’t become an investing mastermind overnight! Opening your account and making your first investment is a big first step, but it’s important to keep in mind that it’s a first step of many. Don’t focus just on investing your funds in one stock. Instead, keep your larger end goals in mind and think about what you later hope to achieve.
Warren Buffett, world-famous investor and Berkshire-Hathaway CEO, once said that “if you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.” This advice holds true for new investors just as much as it does for experienced, successful ones. When you’ve found a company that would suit you well, make sure that you take the opportunity to invest in your future, even if with a small amount of capital.
4. Keep the big picture in mind
This article’s final piece of advice is to keep the big picture in mind when you’re trading. The ultimate goal with trading is to reach a point where your capital works for you, rather than the other way around. For example, when a company you’ve bought stock in starts paying out dividends, you can either take those profits as they are, or reinvest them again automatically. This is one way of making sure that your investments see indefinite growth with very little effort on your part.
Forming a long-term financial plan is an essential part of investing. If you keep the big picture in mind when you’re setting goals for the future, then you’ll find you’re better placed to make wiser, more well-informed investing decisions.
This article has considered the best time to buy stocks and has given some essential pieces of advice for helping you make thoughtful and effective investment decisions. By sticking with fields you know, doing your research, and setting goals, you can ensure that you stand the best chance possible of making reliable investments.