When is the best time to buy stocks?

When is the best time to buy stocks?

Knowing when is the best time to buy your share is very important as you can generate higher returns if you pick your stock at the right moment. In this article, I will show how to pick shares based on the local minimum and company fundamentals so that you not only pick a share that can start raising fast but also make sure you are holding a great stock that can rebound fast if it starts falling even lower than your purchased level.

First, it’s worth mentioning that to trade shares and pick the right ones at the right moment, you should know not only technical analysis, that analyzes graphs, but also fundamental analysis, that puts higher emphasis on company financials to make sure you are holding a strong stock that can rebound fast.

How to define the best time to buy stocks

There are many methods of defining the right time to buy your shares; some traders rely highly on technical analysis (including indicators, support resistance levels, and volumes), others pay closer attention to news, both economic and company-specific news, other traders analyze stock trading irregularities (volatility, gaps, sharp price drops), and take their trading decision. Some pay higher attention to company fundamentals and pick undervalued shares without paying much attention to the share’s current market price. I would recommend combining all the methods when deciding what stock to buy, because when you use a wider approach in choosing the best time to buy the stock, you can manage your risks better and have a clearer picture on when to sell your selected share.

If you want to put a higher emphasis on technical analysis for picking shares, you can read the article ”Best Stock Prediction App or How to Predict Daily and Weekly Price Moves” that will show you simple tools that will help you pick interesting stocks at the best moment. But in this article, we will be picking stocks based on company fundamentals and stocks’ local minimum. And later, after reading both of my articles, you can combine both methods and pick truly amazing shares at the best moment.

Finding the local minimum.

First, let’s see what the stock local minimum is. The stock local minimum can be considered as a part of trading irregularities, especially when the stock dropped sharply. The local minimum refers to the minimum price that the stock reached in some particular time frame, usually short-term. Usually, traders consider 1, 3, or 6-month time frames. If the stock dropped to the minimum point on the period of, say, 3 months, touching its support level, and you see the volume drop, this can be considered a local minimum. The volume drop in this case can be explained by declining sellers’ interest, and the stock reaching its support level can mean that buyers are waiting to take over. A local minimum usually follows after the stock reached some highs or when traders were driving the stock upwards actively and it started gaining in value and then started dropping, reaching the minimum level for the period. You can define the local minimum graphically, by seeing the stock graph, or just by seeing the percentage changes for the period. For graphical representation, check the stock trading dynamics in the last 3 and 6 months. If the stock touched historical maximum (on the 6-month period) and then dropped to its lowest level, showing decline on volumes, this is the local minimum. If you are interested in using the other way in defining the local minimum, examine how much the stock gained in the past 3 and 6 months. If you see it gained a lot in the past 6 months but lost (declined sharply) in the past 3 months, and started going upwards recently, you can conclude that the stock reached its local minimum. If you want to save your time and see the growth/decline dynamics for your selected stock in the past 3 and 6 months, you can use the Stocks 2 Buy iOS app. Download it from the AppStore, register, log in, and go to the Stock Type screen. Then input your desired stock ticker and press the Analyze button.

stock returns

As you can see from the above picture, the app indicated 3-month return and 6-month return. To find the local minimum, find the stock with a 6-month return of at least 10% or more and a 3-month return of at least negative 5% (we have positive number in the image above, so its not touching its local minimum). Please note that if the stock gained 20% in the past 6 months, its 3-month decline should be around 10% and so forth. But of course, this is not a strict rule; it’s just to identify stocks that gained and declined rapidly, but it’s not necessary. The main thing is that the stock should gain in the past 6 months and decline in the past 3 months and then start rising recently, within the last week.

After finding your local minimum, congratulations. You are already one step closer in picking great shares at the right time.

Finding fundamentally strong shares.

The next step is to find fundamentally strong shares. You need this even if you trade shares on a shorter time interval. Because you need strong stocks that can rebound fast if they start falling, and if it’s fundamentally strong stocks, investors and traders will start showing their interest in this stock faster, after it fell, and you have a higher probability of restoring your losses quickly.

So how can you find fundamentally strong shares? You should examine different aspects of a company. It should have a strong management team with great experience. The company should have positive earnings surprise (actual earnings are better than analysts’ expectations). Investment analysts should have confidence in the stock (this is seen based on their ratings, buy, sell, or hold). The stock should have good growth potential (the stock target price should be higher than its current market price). The stock should have strong financials, great operational efficiency, profitability, and liquidity position. You can, of course, manually undertake equity valuation, calculating the stock target price, and analyze company financials to make sure you are holding fundamentally strong shares. Or you can use the Stocks 2 Buy app. Open the app and go to the same Stock Type screen. After inputting your ticker and pressing the “Analyze” button, you can see the Piotroski score. A score of 8 and above indicates that the stock is strong fundamentally. A stock with the growth potential of above 15% can also be considered strong, as its target price (forecasted price) is 15% higher than the market price and the stock is undervalued (trading cheap). The stock target price in the Stocks 2 Buy app is calculated using the DCF valuation model.

Another step is to examine the stock’s rating (assigned by investment analysts from leading brokerage companies), stock EPS surprise, stock sentiment (positive and negative mentions), and overall rating (buy, sell, or hold) assigned based on the three indicators listed. For that, go to the Main Screen inside the Stocks 2 Buy app, and you can see the result after inputting the stock ticker and pressing the “Show analysis” button. The result is shown in the picture.

stock analysis. when to buy a stock

Stock sentiment above 0.5 indicates that the stock has more positive mentions in social networks like X (formerly Twitter). Equity rating Buy indicates that the majority of investment analysts assigned a Buy stock rating, showing their optimism. Positive EPS surprise indicates that the stock’s actual EPS is higher than forecasted EPS (62% surprise in our case). And finally, overall rating indicates if the stock is a good buy idea in the mid-term. If you are a shorter trader, you still need this screen and pick shares with a Buy rating, because it indicates that the stock is strong fundamentally and can rebound fast if it starts falling. This is important as you don’t want to buy a share that will fall rapidly and stay on lows or start trading sideways during an extended period of time.

When is the best time to buy stocks?

Finally, we are approaching the final step, defining the best time to buy stocks. But before we do so, you should know how to find interesting shares, stocks that you can analyze further and input into the Stocks 2 Buy app. For that, you can read the article on Cheap Stocks To Buy Now. Read the first part that will help you find amazing shares using the Finviz stock screening tool. When you have the list of stocks, start inputting them into the Stocks 2 Buy app, one by one.

Here is what you should look for:

1. The stock should have a good EPS surprise of 5% or above.

2. A BUY rating assigned by investment analysts.

3. A sentiment of above 0.5 or 50%.

4. A Piotroski score of 8 and above.

5. A good growth potential of at least 15%.

6. A stock should touch its local minimum showing a price gain in the last 6 months and a price drop in the last 3 months.

If you follow those simple recommendations, you not only pick great shares that look strong fundamentally but also pick shares that are trading low, dropped sharply, and have all the chances to rebound fast and show good growth dynamics, bringing you positive returns. And if not, if the stock will drop further, you at least make sure you hold fundamentally strong shares.

Please make your own research before taking a final trading decision. Remember that no app gives precise forecasts, and market risk is sometimes called uncontrollable risk since you cannot forecast the stock price accurately, as there are so many factors that come into play, and some of them may be contradictory. Good luck on your trading journey. Have fun using the Stocks 2 Buy app.