April 13, 2024

Business Bib

Business & Finance Blog

Top 3 Methods to Know If Your Stocks Have Bottomed

3 min read

As an investor, you would always want to know whether a stock has already bottomed or is nearing the bottom in order to plot your next moves better. Here are the top 3 signs or methods you can use to know that.

Sector Characteristics

All the stocks that you own belong to certain sectors, which are basically groups of public companies and stocks in a related industry.  Some of the most popular sectors for many investors include oil and gas, technology, retail, and financials.

Usually these stocks follow closely both the overall stock market and their respective sectors.  Finding out which sectors your stocks belong to is a great first step to knowing if your stocks are nearing bottom or at a time when declines are not as intense.

Most investors nowadays are familiar with the credit market meltdown of 2008. The disaster melted financial stocks and even drove well-known financial entities out of business. For a prolonged period of time, most stocks traded downward.  

Investors who wanted to find “value” in particular financial stocks were trampled, with the whole financial sector experiencing a historical decline.  What investors learned in the aftermath was to understand in which sector their stocks belonged to and compare its performance against the broader market.

Price and Volume

After you have determined the sector of your stock, you can still look at some other clues that could give you an idea whether your stock is nearing the bottom or not.   Many technical analysts think that stock price and volume are the two most important indications of where a stock is going.

Stocks usually bottom when there are few sellers of that certain stock. If few sellers exist, more buyers remain and buyers are more willing to pay a higher price for the stock. That means a price bottom has been formed.

Volume is another credibility factor for stock prices and price direction, to some extent. Bear in mind that stocks trade on supply and demand, just like other goods. There are many other factors that affect stock price other than the volume. Higher relative volume once the stock has finished down means that the stock is more likely not see lower prices soon.

The Street

Although not all investors pay attention to it, one good way to tell when the stock is bottoming is by looking at its perception on The Street. Unfortunately, many average investors pick up sound bits on the business news and take it without a grain of salt.

The irony is that there is a whole school of investment in which the main strategy is to go against the prevailing or conditional wisdom. This method of investing is rather appropriately called “contrarian investing.”

Contrarians typically go against the “smart” money. There are many times when going against the grain is very lucrative and can also be helpful in determining if your stock has bottomed.

Going against the flow can be especially profitable during market tops or bottoms.  For instance, the Great Depression of 2007 brought with it a bear market for the oil and gas sector. Nobody wanted to touch oil and gas stocks. However, those who did invest in blue-chip oil stocks were handsomely rewarded when the period passed. You can get Wibest Broker News about Wibest Top Brokers here