The most difficult task for any trader or an investor is to determine the bottom of stock or reaches a point from where the stock no longer decreases significantly. Everyone wants to buy low and sell high, but a stock can be influenced by many factors such as economic, financial, political, etc. making it difficult to identifies the bottom of that stock. Also, the stock you want to buy is one of the thousands of stocks that are traded daily in the market worldwide. Knowing when the stock has made the bottom can unlock huge profits and also prevent from making losses.
So, the real challenge is to know that stock had made a bottom.
No one can tell the stocks bottom consistently, but there are common fundamental and technical trends that appear in stocks that are about to hit bottom.
The followings point help to identify that the stock has bottomed or not:
1. Sector Characteristics: The sectors are made of a group of stocks. Technology, Infrastructures, pharma, etc. are some examples of sectors that may be familiar to investors. The stocks follow the stock market and sectors both. Indenting which sector the stock belongs to is a good first step in determining if the stock is near the bottom.
2. Price and Volume: Stocks tend to bottom when there are few sellers of that particular stock than buyers. Few sellers mean more buyers are willing to buy at this price; this means a price bottom has formed.
3. Keep Your Ears on the News: It means to keep an eye on the market news. When the stock is near the bottom, smart money wants to buy such stocks. When at the low of stocks, you start hearing bad news, it can indicate bottoming a stock.
Investors know when the price trends make a key change in either direction, whether they’re reaching tops or bottoms. No one knows exactly with certainty the bottom of any stock. Signs, such as a big volume spike, and the stock’s sector view, will give you some insight that the stock is near its bottom.