A model for Buying

Buy like a professional

You’ve done the research and found a stock or a collection of stocks you think are worth investing in. Where the novice investor would just jump in and buy, you will want to time this right. Inspect financial charts to find out in which phase the market and/or stock is. Understanding technical indicators will help minimise risk and increase profits. Always remember: investing is a rational skill, not an emotional action.

First, establish what kind of stock you are looking for – value or growth. Value investors want to buy stocks once they break out of the accumulation phase or during a re-accumulation in the mark-up phase. You want to buy the stock as it starts to increase in value.

Value or growth stocks?

Knowing which kind of stocks you want and the type of investor you are will help determine when you should buy stocks. In both cases, you are buying stocks as they are coming out of the accumulation phase, which should be clearly visible on a weekly chart.

The difference between the two is that a value investor will buy the stocks after they have sunk and are coming out of the accumulation phase, suggesting that the stock was undervalued.

Value or growth stocks?

Growth investors will buy stocks that are still climbing but have just experienced a new consolidation phase.

Value or growth stocks?

These are, of course, generalisations; sometimes both value and growth investors will buy the same stocks at the same time.

Getting the timing right

When does a stock move out of the accumulation phase? According to W. D. Gann, this occurs when the stock value increases two to three percentage points above the high in the accumulation or consolidation phase. Because the breakaway can happen quite quickly and trends are not always obvious, you might end up buying into an existing upward trend eve without a consolidation

Value or growth stocks?

You should invest early; the longer you wait, the less returns you’ll get and the sooner the stock could start to fall. If you are investing in a stock on an upward trend, make sure that it is still moving above the last peak as a confirmation.

Conclusion

Once you’ve found the right stock, getting the timing right will help you maximise profits and minimise risk. The best time to buy is just at the break-out from an accumulation or consolidation phase.

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