subject: Stock Market Timing - How To Make The Most Of Your Investments [print this page] If you're a relatively new investor, it's likely that you've had more than one person tell you that the only stock advice you'll ever need is to "buy low, and sell high." The reason this principle makes so much sense is that the stock market is a dynamic entity with stock prices that are constantly fluctuating. Although the price changes might happen slowly over long periods of time, they can also take place in the space of a few hours, and it's important to know how to use stock market timing to make the most of your investments.
New investors are likely to be unfamiliar with the concept of stock market timing, so it's important to realize that although it might feel uncomfortable; these fluctuations are natural and necessary for the health of the market. In a market where the prices never changed, or took months to move up or down, there would be almost no opportunities for making a profit, because you'd have to wait so long for the price to be low enough to buy, or high enough to sell. Instead, analysts have pointed out four separate phases of stock market movement: accumulation, mark up, distribution, and mark-down.
When first getting used to the concept of stock market timing, it's important to practice looking for the telltale signs of each of these phases. The accumulation phase is typified by a market that has bottomed out. In this stage innovators and early adopters start buying stocks because they assume that the worst of the prices has arrived. Most investors consider the market to be bearish while it is going through the accumulation phase, but it doesn't last forever, as next phase is quickly to follow.
The next phase of stock market timing, known as the market up phase, is characterized by relative market stability, and moderate price growth in the market. This is usually the time when most of the cautious investors figure that it is safe enough to reposition, and as they start to buy, the prices will slowly be driven up. After the mark up, distribution emerges at a time when people will be both buying and selling, locking up the market and essentially freezing prices for a period of time. When the market breaks out of distribution, it will be because some people will realize they've held on to long, and they'll start selling quickly, which ushers in a downtrend.
