The stock market is usually affected by various seasonal trends that no one can tell exactly when to buy stocks. An old saying “sell high buy low” is a strategy that does not focus on when to do it. However, understanding how the market operates is a great way that helps you to choose to exact timing of buying stocks for a wise investment. There are some factors which you should consider before making the purchase. You may need to consider these:
Seasonality and market timing
With regards to the stock market, seasonality can best be define as successful prediction of the nature of the market during a particular time and making a calculative progress to take advantage of it and to avoid any possible loss.
For instance, if you know that a particular period usually has high returns, you will automatically make the purchase during the preceding month. Market timing on the other hand may need some technical knowledge in order to understand it. It is a prediction of how the market will behave in future basing on hard financial as well as available and relevant economic data.
Making wise investments
This is another key factor that determines when you should make the purchase. Consider summertime or New Year’s. As a matter of fact there are relatively high returns during summer and at the end of the year. Sources show that average monthly returns are low specifically during September.
It is therefore a wise decision for an investor to take advantage of seasonality and buy up stock during that month. The prices for purchase are relatively low and an investor will reap higher returns in the strong month of October. In general, you need to consider the right timing and seasonality for better benefits and profits.
Take into account losses at the end of the year
For some investors who have lost money throughout the year, they tend to seek out tax losses in the coming year’s tax returns. Wise investors will find this as a great opportunity and sell the under-performing stocks at the end of December. Since this is what most investors think, you may try to beat the crowd and sell off your less performing stocks at the end of November or early December.
The high trend during holidays
A lot of trading is going during some specific holidays. For instance, U.S’s holidays such as Thanksgiving and the Fourth of July are usually marked by stock-market rallies. Most investors normally take advantage of such activity. However, you need to consider the expenses that will accrue such as fees charged for each transaction and compare them with potential profit.
Basically, determining the exact time of buying stocks is not a simple task. You need to have substantial knowledge and skills that concerns your business and the market. There is no permanent decision on when to make the purchase. It all depends on the changing trends that affect the market. An investors needs to make wise and swift decision whenever an opportunity present itself for better performance.