Market timing is one aspect of trading that investors will squabble about until the end of time. There are those who will emphatically deny any chance at timing the market — or an individual stock’s movements. On the flip side there are the traders who swear buy market timing, claiming there’s no other proven method for buying and selling stocks.

While both of these methods can be effective, it’s important to remember this cardinal rule: No matter what your investment style might be, you should always be sure to buy shares at the best possible day and time to maximize gains.

For some solid advice on the best time to buy stocks, we turn to a true expert: legendary financial writer and market forecaster Justin Mamis. Mamis literally wrote the book on trading strategies. Many of the practices outlined in his book How to Buy are still valid nearly thirty years after it was first published.

Here are three things to look for before you make your next trade:

1. The day of the week. Early gains on a Monday tend to fade; they are usually temporary reactions to weekend news, Mamis says. On Fridays, a strong close can indicate a healthy market. Our most important take-away would be to vigilant when planning to purchase shares at the beginning or end of the week: these days can give you a good indication as to what direction the market as a whole is headed.

2. The time of the day. As a rule, I will avoid the first half hour to 45 minutes after the market opens when looking to buy a stock. Unless you’re acting on a fast-moving issue, it’s best to let the market sort itself out. It’s easy to be fooled by a stock’s strong early performance, only to see those gains evaporate by the afternoon. Adding to this, Mamis suggests that investors should avoid lunchtime rallies as well, since they tend to be isolated.

3. Anticipate the weak and the strong. Mamis advises to never buy weakness in the late afternoon. His reasoning is simple: you could most certainly get just as good of a price early the next day as invetors’ sentiment carries over into the next trading session. The opposite holds true for strong stocks. Buying a strong stock at the end of the day is a great bet — you’re anticipating a gap-up the next day.

As you’ve probably already guessed, market timing techniques like these are important when you’re trading penny stocks — especially when you’re searching for short-term gains. That’s why I tell my readers to never rush into a position. Decide what price you’re willing to pay, use a limit order and hone your timing skills. That way, you’ll always get the shares you want — without succumbing to the emotional pulls of the markets.

Best,
Greg Guenthner

January 28, 2010

Greg Guenthner

Greg Guenthner uses his experience as a former journalist to dig up the hard-to-find headlines that could lead to big gains for your micro-cap portfolio. Greg offers his readers the scoop on topics ranging from alternative energies to biotechnology, digging up the best penny stock opportunities before they're discovered by the mainstream media. On top of contributing to Penny Sleuth, Greg also heads Penny Stock Fortunes and Bulletin Board Elite.

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