Whenever the market falls more than 30 percent, it is called a major correction. Some people start looking for buying options in stocks, while others are losing money and selling stocks to protect their profit or reduce their losses.
How can I know, is it the time to book profits in stocks or the time to make fresh investments? Is there any way to identify this?
There is no proper guideline and time to consult stock analysts to know when to buy/sell or hold a stock. But there are key facts which can help you to know the market conditions better and a way to identify when to buy or sell stocks.
- Technical Indicators
Technical analysis plays an important role in identifying the stock in a trending market or sideways. Whether the stock price will move up or move down in the near term, it can be identified using technical indicators. 50-day and 200-day moving averages help to determine the behavior of stock in the near term to long term.
Check whether the company is growing its sales and check whether these sales are sustainable or it is just a one-time event. Also, check what management is telling about the quarter result data.
- Improvement in margins
Company margins usually improve or worsen depending on how well it is managed. If the sale is going up and also the costs are going up, it means something is going here. Generally, it is not bad news. It might be possible that the company is expanding its business or launching a new product. On the other hand, the company is doing a poor job in managing the expenses.
- Watch company guidance for long term perspective
Guidance is something, how the company is going to perform in the next quarter or next year. Depending on the guidance, the stock of that company moves up or down. Always look at the guidance in the view of a long-term perspective. It might possible that a company reduces the guidance for the next quarter but raise it for a full-year period.
- Check for new product launch and sales. Check the business model of a new product and watch its sales. Is it growing? Normally, new products help bring more sales and in turn help in rising the stock price. As it is very challenging to understand that the new product will do good or not. But it would be a big mistake to overlook the stocks of the companies that make it.