5 Common Buy Signals In the US Market
3 min read
Should you buy the stock? Should you wait? When you're investing, it's easy to get overwhelmed by too much information. How do you know what signals a buy? How can you better understand the performance of a specific company's stock?
A buy signal (aka entry point) helps you determine when to purchase a specific asset, so you know you're meeting your investment strategies.
1. Trading volume is a solid buy signal when used correctly
Trading volume is the total number of stocks traded during a given period. This indicator reflects the overall activity of a specific security or the market itself. Many investors and analysts use the trading volume to identify and examine market trends and help make their trading decisions.
Pro tip: Trading volume can be a buy signal or a sell signal for stock, so you need to check whether the security’s market trading direction can help you make your move.
Where to find: The volume indicator on your trading software
2. Number of options calls
The number of options calls might also increase on a particular asset. Options calls are bets that the stock will rise by a specified date. A high number of options calls indicate not only a serious interest in the underlying share but a belief the share value will rise. This doesn't always mean you'll see good earnings.
Where to find: Options chains on financial websites online such as Yahoo Finance and the Wall Street Journal Online
3. Look at intrinsic value
Intrinsic value is the objective value of a stock, asset, or security. If the share value goes above intrinsic value (aka book value), it might be a good purchase.
Most use three methods to find intrinsic value:
Discounted cash flow analysis
Financial metric analysis
Analysts compare intrinsic value to the share's current market price to determine whether it's overvalued or undervalued. This comparison helps investors calculate a margin of safety where the market price is below the intrinsic value. This cushion enables you to limit your risk if the stock is worth less than the intrinsic value.
Where to find: Analyst calculations
4. Analyst earnings expectations can serve as a buy signal
Analysts do a lot of research about market trends and release their estimates for a company's quarterly or yearly EPS (earnings per share). These estimates drive the valuation of companies trading on the market.
These earnings estimates can make or break a company's profitability, as they provide detailed summaries that can strengthen or weaken investors' belief in the company's short and long-term vision.
Where to find: In stock quotations or financial publications such as The Wall Street Journal and Yahoo FInance
5. Moving averages round out the list of buy signals in the US market
The last entry point is a moving average of a share. This moving average is just a mean of different averages of a share's price over time.
The higher the average, the more optimistic analysts and other investors are about the company's profitability.
The more experience you get as an investor, the better you'll understand these easy-to-find buy signals.
Where to find: The moving average indicator on some trading software
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