6 Tips for Timing Your Investments

 After reading yesterday's article of Small Cap Investor Daily entitled, How to Lock in Profits and Limit Losses, you now know the appropriate time to use different types of buy and sell orders for stocks.

Armed with this knowledge it's time to discuss the best time to buy or sell a stock. I have 6 tips for you in today's issue.

First, remember to keep these two things in mind when you make an investment:

1. First select stocks you believe offer the most value and growth potential.

2. Second, you need to time your buy and sell decisions.

Let's assume you've already done step one. For step two, remember that to some degree use of limit orders and stop-losses will help to protect you from big losses. But due to the higher-than-average volatility of small caps, you need to be ready to spot other trends that will impact the success rate of your buy and sell decisions.

Here are six useful tips that will help:

1. Set profit goals and bail-out points. Doing this gives your investment strategy some structure. Buy when trends meet your criterion. Either the price meets your pre-determined range, a trend-line changes direction, or there is some change in the broader market. There are virtually hundreds of criterion to chose from, but remember to use ones that support your particular profit goal. Then sell when you reach your predetermined profit yield - or when the stock price drops to your bail-out point.

2. Decrease your holdings after a big run-up. Often stock prices rise and you reach your goal, but you want to believe that the upward trend is going to continue. You can cut potential losses by selling a portion of your holdings, and letting the balance ride. Your investment time horizon will dictate this to a large degree.

3. Use trailing stop orders to control potential losses. Losses happen a lot faster than gains in most cases. Carefully watch fundamental and technical trends, and look for early signals of change. Protect yourself by using trailing stops to set a floor on your potential losses, or to lock in your predetermined percentage gain.

4. Review fundamentals regularly. Don't expect to draw a conclusion about a company and then never look at it again. Everything changes. Just think of the company where you work - surely things were different a year ago, and there are plans to change things in the coming year. This is especially true with small caps, where growth trends can be fast. It is critical that you monitor the fundamentals in the companies you invest in for potential game-changing developments.

5. Follow financial trends and look for leveling-out of those trends. Every trend levels out at some point, even the ones we wish could go on forever. Be on the lookout for subtle changes in revenue, earnings, and the other trends you monitor. You want to make your sell decisions before the change becomes obvious to everyone else, because by then the price decline has most likely already occurred.

6. Track moving averages and identify buy and sell signals. The use of moving averages is probably the strongest of the technical tools you can use. The averages offset short-term price volatility and show you what is likely to occur in the coming weeks or months. Changes in the moving averages can improve your timing of buy and sell decisions and should be watched closely.

You can use these simple tips to help you beat the pros on Wall Street. Despite what many analysts would have us believe, they simply don't have the time to follow the small cap universe all that closely.