Select the timing to
enter the stock market - Linear Regression Line
Select the right time to enter the market is very
important. If you enter the stocks market while the market is in a crazy mood,
you might be able to get a very good return at a shortest time. However, if you
unable to leave the stocks market in time, (before the market crashed) all
money you have earned previously might be wiped off overnight. The best time
for entering the market is at the middle of Bull market.
How to determine when is the middle of Bull market?
We have to look at the long-term stocks market trend.
The easiest way is to use the Linear Regression method to analyse.
By converting the index to a straight line - Linear
Regression Line, you will be able to see the long-term trend of the stocks
market development. The formula of the Linear Regression Line can be expressed
Log (Index) = a(T) + C
Log (Index) = log of Index; T = time Line
We can add 4 more parallel lines beside Line C. The
outer two lines (Line A & Line E) represent 95% lines and the nearer to the
index line, (Line C) represent 75% lines.
The area above line C represents the optimistic period
and area below line C is for the pessimistic period.
Line A, we name it as 95% pessimistic line. If stocks
fall below line A, the market is extremely pessimistic. You can gain a good
profit by selecting some of the blue chips and sell it off after 3 to 4 years.
Line B, we name it as 75% pessimistic line. When stocks
fall between line A and B, the market is over pessimistic. Only those investors
with good analytical mind can enter the market so as to prevent the market from
over pessimistic to extremely pessimistic. At this stage, it will not be a good
time for the small investors to enter the market.
Between lines B and C, the market is pessimistic too. At
this point, the market is unpredicitable. It will not be advisable for the
small investors to enter the market too.
I think, the best time for the small investors to enter
the market is when stocks cross line C from below. From my past experience, the
market is optimistic at this point and the possibility of the market falling
within a short period is very low. Therefore, crossing line C from below is
considered an optimistic period. This will be the best time for the small
investors to enter.
Line D, we name it as 75% optimistic line. I advise the
small investors to leave the market slowly when the stocks cross line D from
below. I believe that, at this time you should have earned a lot of money and
consider how to maintain your profit. At this point, the market is over
optimistic and you should prepare for the market to crash. Once the short term
moving average move below long term moving average, you should sell off all
your shares without hesitation.
Line E, we name it as 95% optimistic line. The stock
market is in a crazy stage and the market crash is imminent. You have to leave
the market immediately.