Sunday, March 04, 2007

Buy at upside breakout at low level

Initially when you buy, you are full of hope. Counting your chickens before they are hatched, so to say. Just as soon as you buy, the price drops, you buy more to average down. It moves down again and you buy some more. Then it moves up a little and you feel elated. “See, I am smart.” You say to yourself.

Suddenly, it moves down again. From some visible soil erosion, it develops into a landslide. You become demoralized. Frustration sets in. Your ego & pride are hurt.

Your hope of making a profit vanished into thin air. It is downgraded to breaking even and then to keeping losses small. By now, the top is formed.

You hold on to your stock hoping and hoping while the stock keeps going down and down. From the initial feeling of love, this feeling has turned to hate. The longer this feeling goes on, the more frustrated you become.

Many months or years later, the stock moves up a little and then a little bit more, you feel happy about it. Just when there is a little bit of hope, the stock drops. It goes sideway. Ding dong ding dong, its goes. Frustration and anger set in.

If it goes up a little bit more, I shall sell everything, you thought to yourself. All of a sudden, volume increases and the price picks up. You see a chance to lose a little bit less; you start selling your stock. The stock moves up and you sell everything. Immediately after that, the stock goes into an uptrend; up and up and away!

“I sold out just before the big move-up.” How many times have you heard this? Can you profit from this stupidity? Give it some thoughts; and you should be able to figure out the answer. If you can’t, look at the heading.