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How to buy at right buy point

Posted on 8/05/2009

  • No matter how good a stock is , buying right can save you lot of trouble.
  • Always buy a stock which is not overextended on a monthly time frame or 10 days time frame.
  • If you buy a overextended stock, no matter how good the fundamentals are or the story is, 9 out of 10 times you will get grief.
  • While momentum is good for a stock you must understand momentum dynamics.
  • 6 month to 1 year momentum is good for a stock but 1 month momentum is negative.
  • Stocks with high one month momentum mean revert.
  • Or in simple language stock which is up a lot in last one month is due for a correction.
  • So if you buy a overextended stock you are buying near a reversion zone
  • See my series on "The 100 year old art of swing trading" .
  • The essential principle behind capturing 20 or 50 or 100% move is to buy a stock after it breaks out after having a normal reaction (neglect of 1 month or more) in its price trend.
  • Such zones are often called swing traders action zone.
  • Buying a breakout out of such zones gets you in to a possible start of a new leg of uptrend.
  • It allows you to put logical stop.
  • This is the most fundamental rule of profitable speculation.


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Samir S said...

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