How to Pick the Bottom in Any Market
One of the most difficult tasks in trading is picking the turns in the market. Catching the exact end of a rocket rally or that falling knife is an almost impossible task. After all, a high-priced stock, commodity or currency can always go higher.
Discipline is critical if you want to avoid the gamble of attempting to predict the reversal due to emotional thinking…
A simple technique to buy the turn higher from the low is to wait for a failed double bottom.
Try my method – It’s as easy as 1, 2, 3!
If you take a look at the image below, prices fell to annual lows with an extreme bottom (1).
A subsequent five session bounce to a higher price (2) stalled and approached the bottom but did not break below that base.
New higher lows (3) formed that double bottom.
The buy trigger in the 1, 2, 3 formation is a push above the high (2) inside the double bottom. Buy when that peak is exceeded with a protective stop loss exit at the bottom (1).
Now you can buy a bottoming stock with confidence. It’s that simple!
Keep it In the Money,
Chart of the Day: The Dow goes green…
It only took eight months…
The Dow Jones Industrial Average suffered its fastest correction ever earlier this year, dropping 37% in a matter of weeks. But it’s finally back in the green. And the gains are holding just fine heading into the short Thanksgiving trading week…
Now that the Dow is hanging tight in positive territory, we should look for these household name stocks to post an end-of-year melt-up into 2021. Don’t be surprised to see the Dow finish the year at new all-time highs…
Trading Tip of the Day
Last week, we discussed capturing the market’s biggest moves through longer-term trades.
Let’s expand on this idea with a few basics…
For a long-term play, we’re looking for:
- A bullish market theme, such as mobile payments, cybersecurity or e-commerce.
2. A stock chart that’s moving bottom left to top right.
- An ideal buy point as the play bounces higher off important support levels.
Of course, buying — specifically figuring out when to buy for maximum profits — is the most important part of this whole process.
Don’t blindly throw money at a play just because it’s trending higher. Instead, you should wait for the for a bounce near a key support level (along a trendline or moving average) before pulling the trigger.
If the stock fails to bounce in the neighborhood of your support line, then don’t buy. It’s as simple as that.
One more important note: You don’t have to wait for perfection. Sometimes, a stock will bounce nicely off your support line or moving averages. Other times, it will “trick” weak hands into selling by briefly breaking through support before quickly recovering. The more time you spend studying charts, the better you will become at learning the market’s idiosyncrasies and pinpointing ideal buy zones for your trades.
— Greg Guenthner