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When to Buy: The stock is undervalued compared to its intrinsic value. Key metrics to watch: Price-to-Earnings (P/E), Price-to-Book (P/B), and consistent revenue/profit growth. When to Sell: The stock becomes overvalued or its fundamentals decline (eg, falling revenue, poor management decisions).
Many investors use price targets to determine when to sell a stock. These investors typically determine a price range for when to sell the stock at the time of purchase. As a stock price rises, they can begin selling the position once it reaches the price target range.
Traders can use the stochastic oscillator as shown in the chart above. The strategy depicted combines signals from the stochastic oscillator and the volume-weighted average price (VWAP) to generate buy and sell signals based on momentum and trend alignment on the stock Johnson & Johnson (JNJ) with a four-hour chart.
RSI and Bollinger Bands. proved to be the most reliable indicators, consistently delivering high win rates across both testing periods. Donchian Channels. and Williams %R (Williams Percent Range)
The relative strength index (RSI) is an indicator used in technical analysis to determine overbought and oversold conditions, which provides traders with buy and sell signals (when to enter and exit positions).
In short, the 3-day rule dictates that following a substantial drop in a stock's share price — typically high single digits or more in terms of percent change — investors should wait 3 days to buy.
Generally, you want to see up weeks in higher volume and down weeks in lower trade. Also look for churn, or heavy volume with little change in stock price. This type of action can signal a change in direction for stocks, either up or down.
The 11 a.m. trading rule is a general guideline used by traders based on historical observations throughout trading history. It stipulates that if there has not been a trend reversal by 11 a.m. EST, the chance that an important reversal will occur becomes smaller during the rest of the trading day.
The 3 5 7 rule is a risk management strategy in trading that emphasizes limiting risk on each individual trade to 3% of the trading capital, keeping overall exposure to 5% across all trades, and ensuring that winning trades yield at least 7% more profit than losing trades.
The Best Day of the Week to Buy Stocks
Monday is probably the best day to trade stocks, since there is likely considerable volatility pent up over the weekend. That said, Friday can also be a good day to trade, as investors make moves to prepare their portfolios for a couple of days off.
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While Stock Analysis provides you with the data and leaves the investment decisions up to you, The Motley Fool just tells you exactly which stocks to buy and when to sell. Stock Advisor is The Motley Fool's most popular product.
Technical analysis utilizes historical price movements to predict future price movements. It utilizes a variety of different technical indicators to watch trends and create signals. These indicators include moving averages, Bollinger Bands, relative strength, moving average convergence divergence, and oscillators.
The Rule of 120 (previously known as the Rule of 100) says that subtracting your age from 120 will give you an idea of the weight percentage for equities in your portfolio. The remaining percentage should be in more conservative, fixed-income products like bonds.
There are no restrictions on placing multiple buy orders to buy the same stock more than once in a day, and you can place multiple sell orders to sell the same stock in a single day. The FINRA restrictions only apply to buying and selling the same stock within the designated five-trading-day period.
Which indicator has the highest accuracy? The Moving Average Convergence Divergence (MACD) indicator is often considered one of the most accurate technical indicators. That is because it uses a combination of moving averages to spot potential buy and sell signals.
Understanding Buy Signals
Some of the most common buy signals include: Chart Patterns: Many chart patterns generate a buy signal when the price moves beyond a certain level. For example, an ascending triangle pattern generates a buy signal when the price breaks out from the upper trend line resistance.
The Moving Average Convergence/Divergence (MACD) is a momentum indicator showing the relationship between two EMAs of a security's price.