How to Buy Stocks

10 Basic Stock Buying Strategies

1. Set a Target Buy Price

The principle is "buy low, sell high," but investors often miss opportunities by waiting for lower prices or fearing highs. Steps to set a target price:

• Step 1: Forecast the company’s EPS for the next 1–3 years (use analyst reports).

• Step 2: Apply valuation methods (e.g., P/E ratio). Compare historical P/E ranges and growth prospects.

• Target Price = Forecast EPS × Expected P/E.

2. Scale-In Buying

Split purchases into 2–3 batches to reduce risk:

• Averaging Up: Buy more as the price rises (e.g., buy at $20 → $22 → $25).

• Averaging Down: Buy more as the price falls (only profitable if the price rebounds above average cost).

3. Price & Volume Analysis

• Low price is the foundation; rising volume confirms demand. A rebound at low prices with increasing volume signals upside potential.

4. Supply-Demand Law

Prices follow "demand leads, supply follows":

• Avoid buying at peak demand (highest volume), as it often coincides with price tops.

5. Buy During "Disasters"

Natural disasters (e.g., earthquakes) cause panic selling, often overestimating actual losses. Savvy investors buy the dip and profit during recovery.

6. Value Investing

Buy stocks with long-term value. Even if temporarily held, dividends can match bond returns. These stocks usually recover faster.

7. Momentum Buying

High-risk, high-reward strategies:

• Strong Stocks: Focus on top gainers by price/volume.

• Sector Leaders: First movers in industries/themes.

• Limit-Up Stocks: Stocks hitting daily涨幅 limits may accelerate.

• Breakout Stocks: Prices surpassing resistance with low selling pressure.

8. Buy-the-Dip Strategy

Target high-quality stocks at lows, but ensure:

• Strong fundamentals and growth potential.

• No macro downtrend (e.g., avoid bear markets).

• Rules: Buy pullbacks in uptrends; wait for 30–50% drops + stabilization in downtrends.

9. Averaging Down (补仓)

• Purpose: Lower cost basis for breakeven on rebounds.

• Conditions: Deep drop + expected rebound.

• Tips:

  • Avoid weak stocks (underperformers).

  • Best timing: Market bottoms or uptrends.

  • Consider new stocks with potential.

  • One-time execution preferred over multiple averages.

10. Trend Following

Trade with three trends:

• Long-Term (>1 year): Bull or bear markets.

• Medium-Term (2 weeks–3 months): Corrections ≥1/3 of prior moves.

• Short-Term (<2 weeks): Daily fluctuations.
  Key: Long trends consist of medium trends, which are made of short trends.