Buying a share? Here’s how to get your timing right

IG Index is a share I like. I’ve written about it twice before. It’s a great play on choppy QE-fuelled markets and on new trading technology.

IG has also experienced pretty decent growth over the years. But in this case it in tming the good old fashioned way: by expanding the client base, widening the range of services, and widening global scope.

It’s a great company and a great share… so I just go to my broker and buy it, right? Well, yes… but before I buy, I always make sure my timing is right. Today, I want to show you how to do just that.

A cracking set of results

IG reported impressive figures this week: Revenue was up 8%, and more importantly, earnings per share were up 22%. In fact, over the last five years, earnings have risen from 25p per share to 40p per share. That equates to an average annual growth rate of 10%. Ten percent might sound modest, but it really adds up when you compound the figure year over year.

And remember – this business is generating its own growth, not buying it in. That means more of the profits are available to pay shareholders. IG’s policy is to pay 60% of profit as a dividend to shareholders. And this dividend has been a great attraction over recent years.

Profiting from mobile technology

The other thing that I bang on about here at The Right Side is technology. Specifically, the drive toward mobile and cloud computing. And on that score, IG is ahead of the pack, and riding a very profitable wave. Almost one third of client deals are now placed by mobile devices. In some countries this stretches to a very impressive 50% of deals.

Over recent years, IG has invested heavily in its mobile dealing platform and technology. In their own words, “This level of expenditure is beyond the majority of our immediate competitors and provides a competitive advantage.”

The beauty is, that once developed, the core technology can be rolled-out across its ever-growing international base. I suspect many competitors are struggling to keep up.

This is a business embracing new technology “We are increasingly recruiting clients who see their mobile device as their primary interface; they research IG and its products and services and then use their mobile device to open an account and trade.”

 

Timing matters

IG Group share price

Regular readers will know that I like to overlay stock charts with Bollinger bands – that’s the shaded blue area. These bands use statistical wizardry to describe the range within which the stock should trade at any given moment. I say, should, because the stats only promise that your stock should remain in range 95% of the time.

I like these bands because they can be a helpful tool for timing your trade’s entry and exit points. These days, many charting packages (even the free ones) offer this tool.

As you can see, right now, the stock is trading near the top of its Bollinger band. Generally speaking, I would want to see the stock closer to the middle of its band (or if I wanted it cheap, closer to the bottom) before opening a position.

That said, the stock has developed a nice rising trend channel – in the following chart, I’ve overlaid the black tramlines that largely follow the top and bottom of the Bollinger bands. If the stock continues to chase higher, it may pay to not wait too long for an entry.

IG Group share price

If I wasn’t absolutely desperate to get in, I’d be tempted to place my buy order at £6.20. That would pitch me roughly in the top third of the Bollinger band. That way, I’d be fairly confident of opening my position – but if the stock takes off from here, I might miss an opportunity.

If I were to play it cool and say to myself “I’m happy to take a punt, but only if the price is right”, then I’d probably put a limit order to buy at around £6.00. Looking at the chart, I’d say it’s pretty much fifty-fifty whether or not I would be able to open the position at this level over the coming months.

Note that, for me, I’d have to be keen as mustard to buy this stock (or any other, for that matter) at the current market price – given that it’s trading near the top of the band. You might think that I’m just tight! And that might be true.

After all, most investors just pay the going rate to open a stock position. Oh well, it’s nice to know that there are so many generous people out there!


ScreenHunter_01 Mar. 25 09.51

2 Responses

  1. 20/01/2014, ricalan wrote

    thanks bengt, As a new investor I think I get the point.

  2. 20/01/2014, Chadwick wrote

    Nice article, can you share with us your preferred settings for the Bollinger bands please.

    Chadwick

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