When people think "growth stock," money signs appear before their eyes. In order to make money off these stocks, you have to know when to buy and sell them. Though this is done on a case-by-case base scenario, we can give you some tips for when to buy, when to sell and how to cash in on short-term savings.
To wait for a little confirmation through increased price and volume in a stock is one thing; to wait final confirmation in the form of news announcement is quite another.
You are more likely to lose money if you insist on not buying until good news is officially confirmed. That's why the Wall Street adage says "Sell on good news."
Why do professionals sell on good news? Because, in the words of William A. Doyle of the highly popular "The Daily Investor:"
"Many other people (mostly non-professional) will jump in to buy the stock on the good news and they will sell out at a good price."
"Also," continued Mr. Doyle, "Good news often leaks out and gets around before it is formally announced. If the people who have advance knowledge of the news do a lot of buying, that will often send the price of the stock up. Then, if they and others sell when the good news is official, the price of the stock may dip."
The market is not a one-way affair. This is true not only of the market as a whole, but of individual issues. That is not to say that what goes up will inevitably go down; quite a few stocks have registered one new high after another without much interruption.
For the overwhelming majority of stocks, however, the opportunities provided by market swings are too frequent to pass up. The difference between the high and the low even in short-term swings often equals or exceeds a year's growth.
The opportunities are even greater if you know how to capital-in on what we call "market disorder," which is created by unusually sharp setbacks. When the market suffers a series of severe reversals, as when it breaks through a psychologically important support zone like the 600, as measured by Dow-Jones Industrial Average, people often get panicky and sell indiscriminately. This creates excellent opportunities to buy favored issues or switch into them from issues you want to get rid of. Though it may entail a small loss, plus brokers' commissions, good stocks bounce back fast during a market rally, which would more than cover the loss suffered in the wrong situation.
The opportunities are even greater if you know how to capitalize on pendulum swings from one group of stocks to another. In the excitement over the soaring popularity of one group, the market may overlook its possible future setback. On the other hand, in a moment of despair, it is possible that you may overlook this central fact: bargains are in the process of being created.
So watch your carefully picked stocks closely and follow their swings, particularly in a general sell-off when people are panicked into indiscriminate selling, which should create beautiful opportunities for buying your favorites!