Different ways of buying stocks
Let's say you're interested in this company. You read its annual report and, as you can see, your calculations indicate that the stock traded at a price below its fair value. You are very excited. It's time to buy! Hung for a second. There are several techniques where to buy stocks. Some are better than others. Let me explore a few useful ones.
Buy All Limit Price Suppose we did our research and we wanted to invest $ 2,000 to buy stock XYZ at $ 12 per share. We can purchase 166 shares of XYZ by setting a limit order of $ 12 / share. The advantage of this approach is that we will not pay more than $ 12 for our XYZ shares. If you use a market order instead of a limit order, XYZ may run up to $ 13 / share and execute your order at $ 12.50. Fifty may not sound like much, but in this case, you only need to save $ 83 using the limit order. Any better way? Look at the next one.  Buy Half of $ 12 Buy Half When It Falles Stock Market Turbulence. It moves up and down for a variety of reasons. In this case, we set a limit order to buy $ XYZ for $ 1,000 at $ 12 per share. When XYZ falls, if you think the reason you originally purchased it is still valid, then you can buy more XYZ at a lower price. If XYZ drops $ 1, you have saved $ 83 in the package. What else is there?
US Dollar Cost Average (DCA) With DCA, investors usually buy fixed-dollar stocks on a regular basis. In this case, you can decide to invest $ 500 a month in XYZ stock. If XYZ shares fall, you can buy more stocks next month. If XYZ shares go up, you will buy less. But it is ok. You've made money on the XYZ stock you bought at a lower price.
Which method is the best? There is no clear answer to this question. Personally, I would never use a market order when buying stocks. The board buying the limit order is not as expensive as it used to be. My favorite method is to initially buy half positions and then add another half when the stock falls. If you do your research, do you think $ 12 per share is a good buy, so why do not you buy more if it drops to $ 10? Just make sure the underlying remains the same when the stock falls.
Although it is important to know how to start your position, I am more inclined to calculate the fair value of the stock. This is the bulk of your return on investment.