So I’ve seen some posts here about people asking about when to buy stocks during this market downturn. And I’ve been trying to figure it out myself and I came up with some ideas that seem useful. This is perhaps my third market downturn and I feel like I’ve gotten a lot better at it since the first time.
1-Nobody knows beforehand where the exact bottom is beforehand. Everybody has ideas, but most of them are wrong. If you think the market is gonna bottom in a week and you’re waiting for it to bottom, you’ll probably miss the boat.
2-Different stocks and industries bottom on different days. For example, cruises bottomed on a different day than tech stocks over the past week. Cruises bottomed on the 28th or 29th. Whereas tech stocks bottomed on the 30th and today. (this could change as the week progresses, but I’m guessing that these stocks have already bottomed for this downturn. I could be wrong though.)
3-The best time to buy is going to be around the time when you’re scared and kind of hesitant because you think prices might drop more. This is when prices tend to be most depressed. Not only are you feeling this way, but so is everybody else.
4- Since you probably don’t know how long the downturn will last and how severe it will be, I recommend a strategy of buying on different days instead of dropping all your money all at once on the first day.
5- Try to buy after the downtrend reverses. Don’t buy before the trend reversal. It takes some practice to be able to identify when this happens. But generally, get a good chart of your stock using thinkorswim or some other problem. Watch the price action and set up a simple moving average. The MACD indicator can also help. As the downtrend continues, the price will rally a little. Most of these rallies will be false rallies and the price will drop further after the rally. At some point, you’ll see a particularly strong rally and that may be a trend reversal. You can take a chance at buying in at that point. In case you’re wrong, it would be wise to set a stop loss slightly below your entry point. You can also use a trailing stop loss. At some point, one of those big rallies is gonna be the real thing. And then you’ll be in.
6- Don’t worry if you miss the bottom. You can still get in at a good price if you’re a little late or early. A lot of people miss the boat entirely or they panic sell and don’t get back in. You’re beating all of those people already.
- Try to buy the securities that you think will recover strongly and quickly. There’s no point in buying in a market downturn if you end up with a stock that doesn’t recover or takes many years to do so. (some people will disagree with me here) Or worse, a stock that falls further.
- Don’t be afraid to experiment. The more market downturns you go through, the better you’ll get at it. And the better you get at it, the more money you’ll make. there’s big money to be made in a very short amount of time in these downturns.
Disclaimer: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence or consult your financial professional before making any investment decision.