“What Price Do You Buy Stock At?“ Knowing the price to buy a stock makes all of the difference in feeling comfortable about your stock trading. But nobody talks about how you are supposed to know what price to buy your stock at. So in this blog we’ll cover the decision of what price to buy your stock at in considerable detail.
I will share my perspective with you, including considerations from both technical and fundamental analysis. My goal is to show you exactly how I decide what prices I buy my stocks at… so you get a big picture understanding of how you should buy and sell your stocks too. Make sense?
What Price Do You Buy Stock At? — 3 Main Factors:
When figuring out what price to buy your stock at, there are 3 main factors to consider. These major factors begin even before you buy your stock. So here they are:
(1) Know Your Risk (Time and Money): Before you ever decide what price to buy a stock at, you must decide how much money you can put on the line, how much you’re willing to lose and for how long.
The answers to these questions will be dependent on if you are a long term buy-and-hold investor, a technically-driven day trader or somewhere in between. But in all cases you should know your pain tolerance, and under what circumstances you will cut your losses or get out of the trade because it’s taking too long (if the latter applies).
Trading and investing can be emotionally difficult. It can be almost impossible to think when your heart is pounding and your blood is rushing, in the heat of the trade. You have to plan out your executions ahead of time as much as possible. Make a plan and stick to it. If you don’t do that, it doesn’t matter what price you buy the stock at.
(2) Fundamental Analysis: The fundamental analysis of stocks is a major component in deciding what price to buy your stock at for most long term investors. On the other hand, for day traders don’t consider fundamental analysis for a single second. So your use of fundamental analysis will probably be correlated to the longevity of your trading or investing time frame.
But fundamental analysis is definitely something that can help you get the best price to buy your stock at. And under the umbrella of fundamental analysis there are a couple of different things to think about when deciding at what stock price do you buy at. In particular…
The fundamental valuation will tell you what the company is worth in terms of it’s assets and discounted future cash flows. As an example, conservative “orthodox” value investors usually look at buying companies trading below 0.7 of their tangible book value. The fundamental valuation can give you a quantitative price to buy stock at based on the intrinsic value of the business.
The growth narrative will give you an idea as to how the business is faring in it’s competitive environment and the growth expectations priced into the stock. Knowing what is expected of the stock at the current price is incredibly important in determining what price to buy stock at. This growth narrative is a bit tougher to nail down and you will get it from listening to management presentations and reading annual reports. While it’s a little more, qualitative the growth story adds a ton of depth to your analysis of what price to buy your stock at. And finally…
Shareholder friendly management is also incredibly important in determining if a stock is likely to increase in value or not. While listening to management calls and presentations will not tell you exactly what price you should buy a stock at, it can still be informative. Shareholder friendly management can really support the price of a stock, especially if a technical uptrend is beginning to form. Speaking of technicals…
(3) Technical Analysis: As much as it’s important for you to think what a stock is worth, it’s also important what the market thinks in terms of the price you should buy stock at. That’s why technical analysis is important in determining what price you buy your stock at. Technical analysis is the study of price and volume. There are hundreds of nuances, overlays and indicators you can use to refine your particular approach to technical analysis. In it’s simplest form…
Technical analysis means using the previous prices of the stock as a guide. For example a 5 year chart of your favourite stock idea will show you historical prices where buyers stepped up to support the stock price. So if you are a long-term bargain hunter (and the fundamental case supports it) you may want to wait until stock pulls back to its recent lows before buying (especially if it lines up with your fundamental analysis!)
Alternatively, if you are a day trader you might want to buy shares of a position when it is breaking out of a short term consolidation pattern. And if you’re a momentum swing trader you might use moving averages to identify when new trends are starting to firm up so you can confidently buy the dip. There are a lot of approaches you can use in technical analysis and the degree to which you include it will depend on your investing time frame – but no matter what your style technical analysis can help you figure out what price to buy stock at.
So while the above three main factors are instrumental in determining what price you buy stock at, they are also subjective to your own personal investing style and approach to the stock market. I truly believe you can get the best stock prices if you pay heed to all three of these factors in a way that suits your particular trading methodology you can buy your stock at the perfect price.
Example of What Price Do You Buy Stock At [VIDEO]:
The Price You Buy Stock At Matters!
The price you buy your stocks at is important. It is important not to overpay, get trapped in an exuberant rally, or sell out at the bottom of a stock market pull-back. When you pay attention to what price you buy your stock at you can get better stock market returns, and you can reduce your emotional turmoil. Sounds pretty good, right?
So it doesn’t take a quant to realize prioritizing what price you buy your stock at is important. And I hope this blog post helps you get a grasp of the question “what price do you but your stocks at?”
But now I want to hear from you, is there anything else you consider in terms of what price do you buy your stocks at?
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