Three tools to help you decide when to invest

Deciding when to invest isn’t an easy process for a lot of us. First there’s the issue of where to get stock ideas. Then it’s time to research a stock to work out whether the investment opportunity matches your goals.

Let’s say you’ve done your research, and you believe the stock you’ve chosen may be a sound investment. What next?

You might feel an overwhelming desire to jump in straight away, or maybe you’re the total opposite (reluctant to commit). You might feel good about a stock, but not completely confident that now is the right time (or the right price) to invest in this particular company.

One way to manage all these emotions is to develop a personal process using tools to help you decide when to buy a stock. CommSec provides a range of tools to help you establish your process – and we’ll cover off our top three tools below.

Alerts

Alerts can help you keep a close eye on what’s going on with a stock price. As you get familiar with the price movements of a company in your watchlist, you might start to develop an idea of how much you’d be willing to pay for a share. You can then create an alert to notify you if the share reaches the price you’d be comfortable with.

For example, say you found a company you’d like to invest in, and you’d be willing to pay $68 per share. The stock is currently trading at $70 per share, which you think is too high. So you set up an alert to notify you if the stock drops to $68 or below. If you receive an alert that the stock has reached your target price, you can review your research and consider whether you still think $68 is a fair price. If it is, you might go ahead and make a purchase.

You can also create alerts to notify you when a company makes a market sensitive announcement, or when a stock goes ex-dividend. These can help you keep track of your existing investments as well as prospective ones.

To create an alert:

You can also access your alerts via the main menu in the CommSec Mobile App.
 

Charts

Price charts can be used as a complementary tool when you’re exploring an investment opportunity. They might help you confirm beliefs you have about the direction of a share price. If you’re considering buying a stock, you can review its price history over a medium to long-term timeframe to see whether the chart shows any trends around the share price. For example, if the price is steadily going down, you might decide to wait until the direction changes before you buy the stock.

CommSec provides a suite of sophisticated charting tools that you can use to compare stocks and track their performance.

To access charting:

Key things to look out for in charts:

• Does the share price seem to be trending up or trending down? If it’s falling over time, try to find out why (read company announcements and reports).
• How much demand is there for the stock? If it’s trading at abnormal volumes, has something happened to suddenly increase or decrease demand?
• Does the price seem to fluctuate within a particular range? If so, you might choose to buy the stock when it’s at a low point in the range.
   

Let’s wrap up

As an investor, you can equip yourself with a range of tools to help you decide when to invest in a company. Using these tools, and developing a process to evaluate opportunities, is essential in becoming a more disciplined, informed investor.

1. Watchlists – add stocks you’re interested in to watchlists and pay attention to how the stock price moves in relation to market conditions.
2. Alerts – set up alerts to notify you if a stock reaches your target price.
3. Charts – check the price history chart for a company to determine whether there are any particular trends in the share price.