The What, When and How Much of Investing? (Part 2 of 3)
By Peter S. Iuvara

"The when of investing" will answer the important question of whether now is the optimal time to invest in the security or not?* For this question, I like to use technical analysis. Technical analysis has gained a lot of respect over the last decade or so. Simply speaking, technical analysis is the process of reviewing historic data, usually stock price charts, and estimating where the security will go from there. Some of the most commonly used methods to technical charting are trend-lines, moving averages and support / resistance levels.

Trends (trend-lines) are an important measure of momentum. A trend can either be upward or downward facing. Uptrends are drawn by connecting subsequent troughs, or bottoms; downtrends by drawing peaks, or tops. Once the line is drawn, you can extend it in anticipation of where the security may be trending to in the future. Investors are typically "bullish" during uptrends and "bearish" during downtrends.

The most popular interpretation of moving averages focuses on price movement relative to the average itself. Investors are typically "bullish" when the price of the security moves above its moving average and "bearish" when the price falls below its moving average. Moving averages are also extremely useful in smoothing the securities movement over time.

Support / Resistance levels are another key indicator in technical analysis. These levels represent where the security is trading relative to its historic stock price highs and / or lows in a given time period. The security usually has difficulty passing either up through a resistance level, or down below a support level. They provide trading ranges as "expected" levels of where the stock should be trading. Investors are typically "bullish" when the security passes above its resistance levels and "bearish" when the price falls below its support level.

All of the above indicators should be used together as starting point in determining the timing of investment decisions (the "when").

Technical Analysis is the second important step in, The What, When and How Much of Investing, but there is more! We still have to answer How Much. Be sure to check out Part 3, same time, same place next week. Make Profitable Investment Decisions!

*Investor sentiment will also figure into this decision, but it will be discussed in detail separately in Part 3.