2. Counter Trend Trading and Bottom fishing
Human Emotions, what a continual marvel!
All of us want everything for free or at least at the cheapest possible price.
One mistake that the novice traders make, out of emotions, is to make trade in the opposite direction of the trend. They buy a stock when the price is making lower-high and lower-lows (definition of DOWN trend) in an attempt to try and catch the bottom. They want to enter the stock at the lowest possible price and ride the rise of success. This attempt of counter trend trading and chase of price in search of the bottom is referred to as bottom fishing.
Yes, they will be able to catch the exact bottom once or twice in their trading careers but most of the times they will not. And when the novice trader fails to catch the bottom, he falls prey to the first mistake that we discussed; he converts from a trader to an investor and holds the loss making position.
Mistake! Mistake!! Mistake!!!
There is a simple yet effective solution to avoid such situations, when the stock is in a DOWN trend (making lower-high & lower-low) we must not take a long position. We must only take a long position when the stock starts making higher-high and higher-low (Definition of UP trend). There is NO established study that tells us that it is NECESSARY for us to try and catch the bottom at all! Just give this emotion a pass. Simply DONT bother about buying at the bottom.
It CAN NOT be done!
Its better to enter a trade late and move out of it quickly instead of moving in early and holding the position for a longer period of time with the ever so prevailing RISK of losing money to the down trend!
Human Emotions, what a continual marvel!
All of us want everything for free or at least at the cheapest possible price.
One mistake that the novice traders make, out of emotions, is to make trade in the opposite direction of the trend. They buy a stock when the price is making lower-high and lower-lows (definition of DOWN trend) in an attempt to try and catch the bottom. They want to enter the stock at the lowest possible price and ride the rise of success. This attempt of counter trend trading and chase of price in search of the bottom is referred to as bottom fishing.
Yes, they will be able to catch the exact bottom once or twice in their trading careers but most of the times they will not. And when the novice trader fails to catch the bottom, he falls prey to the first mistake that we discussed; he converts from a trader to an investor and holds the loss making position.
Mistake! Mistake!! Mistake!!!
There is a simple yet effective solution to avoid such situations, when the stock is in a DOWN trend (making lower-high & lower-low) we must not take a long position. We must only take a long position when the stock starts making higher-high and higher-low (Definition of UP trend). There is NO established study that tells us that it is NECESSARY for us to try and catch the bottom at all! Just give this emotion a pass. Simply DONT bother about buying at the bottom.
It CAN NOT be done!
Its better to enter a trade late and move out of it quickly instead of moving in early and holding the position for a longer period of time with the ever so prevailing RISK of losing money to the down trend!
