Level Up Your Stock Market Investing!
by Makoy Velasco, Certified Securities Representative
Step 1: Keep yourself updated. Read the news (if possible, everyday). Visit PSE EDGE from time to time. Information is a very significant key in determining stocks with great potential. By reading news and keeping yourself updated, you can catch stocks with great potential whose prices hasn’t rallied yet. A perfect example is ARA. Here’s a news link related to ARA dated last November 27, 2015: http://www.businessmirror.com.ph/araneta-center-in-cubao-qc-reveals-p35-billion-face-lift/.
Before ARA’s price rallied, the news came out months before. Should you have known about such plans, you could have monitored or better yet bought and believed in the company and its stock price. However, buying merely because you’ve read it in the news or PSE EDGE could be extremely risky because sometimes, it doesn’t draw any investor interest/sentiment. To filter it out, do step number 2.
Stocks that don’t react to the news or disclosure immediately are not uncommon in the PSE. The ideal entry on such stocks is when the price is still inching up and still hasn’t rallied (increase and volume isn’t too much). When volume increases, it’s normally too late as people notice the stock already. It’s usually the time to sell (when the stock price rallies) and pocket gains since people are flocking in to buy. When prices rally, it leads to steep corrections as investors who were able to get it low or before the rally are selling and pocketing gains. Sometimes the steep drop is caused by bad news or simply because of “sell on news”. The point is, be in before the big run.
Step 2: Check the chart. The last thing that you want as an investor is buying and getting stuck in a certain stock that doesn’t move hence the importance of charts. After knowing the possible drivers by reading the news or PSE EDGE, start buying when the stock price starts to move. Aside from ARA, other great examples lately are NOW and VITA.
Steps 1 and 2 can be interchanged. You can also look at the charts first. Once you see something that goes up high, check PSE EDGE to find out the reason why. The point of steps 1 and 2 is to know the reason why stock prices go up and to increase efficiency in trading by buying only when the stock price starts to rise. The time waiting for it to rise could be a wasted opportunity.
Step 3: Follow the trend. A very popular saying in stock market trading is “the trend is your friend”. If you just follow the trend, you’ll be in great hands. Try opposing it though and the results can be tragic. One way of determining the trend of a stock price is through the use of moving averages. Moving averages is one of the simplest, most popular, most useful and widely used tool by traders in determining trends. It’s so useful that by using moving averages alone, you can easily pinpoint at what price to buy, when to hold on to stocks and when to sell and at what price.
Moving averages are derived by simply getting the average of the closing prices of a stock in a specified period of time. For example, a five day moving average means that it’s the average closing price of the stock for the last five days.
Moving averages can be used for short term trades or long term trades. For short term trades, the commonly used moving averages are 13 days, 20 days and even 50 days. For long term trades, the commonly used moving averages are 50 days, 100 days and even 200 days. Regardless of settings (number of days), how moving averages are being used is the same.
Only buy when stock prices are above moving averages, hold the shares as long as price is above the moving average and only sell when price drops below moving average.
The image above shows FNI’s price movement for the last six months up to April 25, 2016. FNI was a sell six months ago when it dropped below the 20 day moving average. It was a buy again late January when the price went above the 20-day moving average. At this point, by selling when it dropped below the moving average and buying again when it went above, you could have saved yourself from losing around -55% by selling at P1 instead of holding on to it dropping to as low as P0.45.
By buying at P0.55 and still holding on to FNI, total gain reached roughly 72.72% already and the price still continues to rise. You may check the possible reason of FNI’s rise through PSE EDGE.
Be quick in updating yourself in both what’s happening to the companies listed in the PSE and their respective price movements. The most profitable entries are usually during the time of disclosure or news when investors still haven’t noticed the stock. Stocks with great news can easily double its value in no time because news draws investors in. The earlier you get in (buy), the bigger your potential profit is.