Navigating Market Lingo In 2021

This is the emergency that always occurs when you have the least amount of cash available – (Murphy’s Law #73)

4) Bottom Feeding Knife Catchers

Unless you are adept at technical analysis and understand market cycles, it’s almost always better to let the stock find its bottom on its own and then start to nibble. Just because a stock is down a lot doesn’t mean it can’t go down further. A significant multi-point drop is often just the beginning of a more considerable decline. It’s always satisfying to catch the low tick, but it’s usually by accident when it happens. Let stocks and markets bottom and top on their own and limit your efforts to recognizing the fact “soon enough.”

Nobody, and I mean nobody, can consistently nail the bottom or top ticks. 

 

5) Averaging Down

Please don’t do it. For one thing, you shouldn’t have the opportunity as a losing investment should have already gotten stopped out.

The only time you should average into any investment is when it is working. If you enter a position on a fundamental or technical thesis that proves correct, it is generally safer to increase your stake in that position on the way up.

6) Don’t Fight The Trend

Yes, some stocks will go up in bear markets and stocks that will go down in bull markets, but it’s usually not worth the effort to hunt for them. The vast majority of stocks, some 80+%, will go with the market flow. And so should you.

It doesn’t make sense to counter trade the prevailing market trend. Don’t try and short stocks in a strong uptrend and don’t own stocks that are in a strong downtrend. Remember, investors don’t speculate – “The Trend Is Your Friend”

7) A Good Company Is Not Necessarily A Good Stock

Some great companies are mediocre investments, while some poor quality companies have been great stocks over a short time frame. Try not to confuse the two.

While fundamental analysis will identify great companies, it doesn’t take into account market and investor sentiment. Analyzing price trends, a view of the “herd mentality,” can help determine the “when” to buy a great company that is also an outstanding stock.

8) Technically Trapped

Amateur technicians regularly fall into periods where they tend to favor one or two indicators over all others. No harm in that, so long as the favored indicators are working, and keep on working.

But always be aware of the fact that as market conditions change, so will the efficacy of indicators. Indicators that work well in one type of market may lead you badly astray in another. You have to be aware of what’s working now and what’s not, and be ready to shift when conditions change.

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