Recognizing Stock Bottoms with Strong Support
Many new Independent Investors and Retail Traders do not have a lot of capital to invest or trade in stocks. One key Technical Analysis aspect is how to buy a stock just as it is completing a bottom.
Bottom Formations are wonderful technical patterns for any investor for long-term and for the beginner to novice Retail Trader. Also advanced Retail Traders with limited capital, will find bottoming entries far lower risk with significantly higher profitability.
Unfortunately all too often new Independent Investors and Retail Traders see a fast running stock nearing a topping pattern, and rush to buy it because it has been running up for so long. It looks as if the stock is never going to stop, pause, or correct. However, the longer the stock runs the higher the risk of a Market Correction or at least a long sideways pattern. If you have a low capital base or are new to investing and trading, avoid high risk stocks that can suddenly wipe out huge chunks of capital and confidence.
Instead, focus on finding stocks that are completing their bottoms. This is when the stock will have the strongest support close by. By strong support I mean that the stock has an extremely low risk of moving below that prior bottom low. The sideways action of a bottom provides very solid strong support. Therefore if a mistake is made on the entry price you don’t need to worry about getting taken out at a loss, and can simply hold a bit longer and the price will move up.
Below is a candlestick chart example with a daily view of a stock that has been running.
Martha Stokes CMT
TechniTrader technical analysis using FreeStockCharts charts, courtesy of Worden Bros. and FreeStockCharts.com
Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses
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