How to make money from stock investment – Part 2
There is important element to cover before buying stocks that is, reading the chart, by using simple moving average. This is straight forward and no brainier, but i’m not sure that this is correct, as per professional standard. Any way i used it for last 8 years and most of the time, it worked ;-)
For example, Apple stock, it is very hot stock right now and many small and individual investors want to buy it. In my opinion, Apple is paradise for long timers, meaning buy and hold for next 2-3 years, you might get more than 100% profit. So the question is, is it right time to buy? Let’s see the chart.
Step 1:
Go to following URL
http://finance.yahoo.com/q/ta?s=AAPL&t=1y&l=on&z=m&q=l&p=e50&a=&c=
To get there by clicking links, go to Yahoo.com -> Finance -> Enter AAPL -> Click on Basic Tech. Analysis link -> click 1 year -> click Moving Ave. 50 link
If you want more control, try Yahoo’s interactive chart and click Simple moving average from Tech. indicators drop down and leave 50 days as default value.
http://finance.yahoo.com/echarts?s=AAPL#chart1:symbol=aapl;range=1y;indicator=sma+volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
Step 2 :
The red graph line is smooth 50 days average of Apple stock for past 1 year. There you can clearly see that peaks and valleys. The blue one is day by day stock price variance for last 1 year.
Step 3:
Based on the chart, Apple’s stock’s high value is 180 and lowest value is 120. Now Apple’s price is 156.
Step 4:
There are 2 lows [120 and 140] and 1 high [180] and current moving ave. graph suggesting me that, Apple’s stock attained 2nd peak and ready to fall for 3rd low. I can point 3rd low is anywhere between 150-145.
Step 5:
It is good to start buying Apple’s stock for 150 and then complete all by 145. What i mean by start and complete here? There is the golden rule of stock buying, never buy all at once. Let’s say, if you are planning to invest 10k for Apple stock, first create 4 limit orders
2.5k for 150
2.5k for 148
2.5k for 146
2.5k for 145
This is like fishing, wait and wait for price drop and patience will prevail.
Now question is what will happen if the price not coming down and i waited for long time??, what is the time limit? i would say, daily check for market conditions, adjust your limit order based on that. I usually wait for 2 weeks to fill up one order and i think optimum time line is one month, having said that we carefully watched moving ave. charts. Since i’m not professional and i might read chart wrongly, to cover up that i usually wait for 2 weeks.
More tips:
1. You can’t find this kind of smooth peaks and valleys for old blue chips companies, because they offer generous dividends, hence stock price variance is almost nil. Good examples are GE and Altria (MO). GE offers 4.50% dividend and MO offers 5.50%. Altria is the stock to buy now, after Philip Morris span off, now it is good entry point now. GE, MO and PM are paradise for conservative buyers, since you can make 5.50% return on investment regardless of stock prices up/down. But most of the investors feel that MO is a sin stock, since it is dealing with tobaccos, but point to remember is no sentiments and emotions for investment business. If you feel that way, you can make some donations to cancer foundation with your profit or offer a gift to guys like me who quit smoking. ;-)
2. There are sometimes, even though chart suggested that stock is ready to fall, it may go upward for sometime. This is because of current market condition. In this situation, we can fill up 25% of our order by market order [buy it immediately] or adjust limit order price to upward.
3. If you are interested in one stock but not sure whether to buy or not, add it in your watch list and daily morning before market opens check the latest news, most of times 50 days SMA alerts might delivered from some professional.
Next post, bull and bear make money but pig always lose why? And how to stop lose like Las Vegas's bust style ;-)
For example, Apple stock, it is very hot stock right now and many small and individual investors want to buy it. In my opinion, Apple is paradise for long timers, meaning buy and hold for next 2-3 years, you might get more than 100% profit. So the question is, is it right time to buy? Let’s see the chart.
Step 1:
Go to following URL
http://finance.yahoo.com/q/ta?s=AAPL&t=1y&l=on&z=m&q=l&p=e50&a=&c=
To get there by clicking links, go to Yahoo.com -> Finance -> Enter AAPL -> Click on Basic Tech. Analysis link -> click 1 year -> click Moving Ave. 50 link
If you want more control, try Yahoo’s interactive chart and click Simple moving average from Tech. indicators drop down and leave 50 days as default value.
http://finance.yahoo.com/echarts?s=AAPL#chart1:symbol=aapl;range=1y;indicator=sma+volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
Step 2 :
The red graph line is smooth 50 days average of Apple stock for past 1 year. There you can clearly see that peaks and valleys. The blue one is day by day stock price variance for last 1 year.
Step 3:
Based on the chart, Apple’s stock’s high value is 180 and lowest value is 120. Now Apple’s price is 156.
Step 4:
There are 2 lows [120 and 140] and 1 high [180] and current moving ave. graph suggesting me that, Apple’s stock attained 2nd peak and ready to fall for 3rd low. I can point 3rd low is anywhere between 150-145.
Step 5:
It is good to start buying Apple’s stock for 150 and then complete all by 145. What i mean by start and complete here? There is the golden rule of stock buying, never buy all at once. Let’s say, if you are planning to invest 10k for Apple stock, first create 4 limit orders
2.5k for 150
2.5k for 148
2.5k for 146
2.5k for 145
This is like fishing, wait and wait for price drop and patience will prevail.
Now question is what will happen if the price not coming down and i waited for long time??, what is the time limit? i would say, daily check for market conditions, adjust your limit order based on that. I usually wait for 2 weeks to fill up one order and i think optimum time line is one month, having said that we carefully watched moving ave. charts. Since i’m not professional and i might read chart wrongly, to cover up that i usually wait for 2 weeks.
More tips:
1. You can’t find this kind of smooth peaks and valleys for old blue chips companies, because they offer generous dividends, hence stock price variance is almost nil. Good examples are GE and Altria (MO). GE offers 4.50% dividend and MO offers 5.50%. Altria is the stock to buy now, after Philip Morris span off, now it is good entry point now. GE, MO and PM are paradise for conservative buyers, since you can make 5.50% return on investment regardless of stock prices up/down. But most of the investors feel that MO is a sin stock, since it is dealing with tobaccos, but point to remember is no sentiments and emotions for investment business. If you feel that way, you can make some donations to cancer foundation with your profit or offer a gift to guys like me who quit smoking. ;-)
2. There are sometimes, even though chart suggested that stock is ready to fall, it may go upward for sometime. This is because of current market condition. In this situation, we can fill up 25% of our order by market order [buy it immediately] or adjust limit order price to upward.
3. If you are interested in one stock but not sure whether to buy or not, add it in your watch list and daily morning before market opens check the latest news, most of times 50 days SMA alerts might delivered from some professional.
Next post, bull and bear make money but pig always lose why? And how to stop lose like Las Vegas's bust style ;-)
Comments
The 50 EMA doesn't work when we got an unexpected rumor/news from companies. The break down/up will be substantial for daily stock movement. Based on my experience this happen immediately after a company announces results. My recent memory points to, FRE(Freedie Mac), if you try 5 yr and 50 EMA, you can see a smooth curve until Dec 2007 and then big crash from 60 to 7. We can't expect this because suddenly beast would appear from no where. To avoid this free fall, we always set stop limit order to 15-20% below buy price and always buy stock after a company announce its Q results. I hope i answered your question.