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Anyone else share this mental problem?
- Thread starter cashmoney69
- Start date
Quote from cashmoney69:
Whenever I look at a chart and see a nice up trend or down trend, I feel like I need to wait for a pullback or else I'm both foolish and impulsive to be buying the possible top. How do I get around this mental block...anyone else feel the same?
You get around it by realising whether the fear is justified or not. You do this by getting experience of what typically happens in that scenario - is it normally right to buy? Or normally wrong? Or a coin flip?
Once you have experienced many cases where you were afraid to buy, and yet the market went considerably higher, then your fear will slowly fade away, and be replaced by confidence in making those purchases (assuming it is normally right to buy in these cases - I don't know since I don't know when you feel fearful).
There is no shortcut to confidence, it is earned by getting repeated proof that your market strategies and intuitions are sound. Same with fear - you only lose it once you realise there was nothing to be fearful about.
Let's assume you want to buy 100 shares of a hot stock currently priced at its several year high of $197.00, and you want to wait until the stock makes it's first drop of $30 a share before making your full purchase. ($30 dip is your only criteria for timing your entry into this stock)
you could buy 10 shares every $10 up starting with the current price, until you own those 100 shares. (buying at 197, 207, 217, 227 etc). If the price of the stock keeps rising without a 30 drop, you would find yourself with 100 shares of a stock positioned above $287.00 with your average price of about $242 a share.
other scenario's of this scalling up buys:
If the price of the stock rises, and at some point dips $30. You buy in at every $10 up, (10 shares at $197...10 shares at $207...10 more shares at $217.... 10 at $227, and $10 at $237... at which this point the price drops about 30 dollars to $205 having you buy the remaining 50 shares at that price(or wait for a bit lower)....with your average price per share then being $211...
-this scalling in strategy, instead of waiting for the major dip, would have here cost you an overall amount of 6 dollars a share more then if you waited for the big dip and bought 100 shares at $205, but you get the benifit of having the full lot of 100 shares if the stock takes off without the dip.
-if the stock instead rose to the $267 buy-in point, then dropped about $30 to $235, your average cost per share would be about $233 as soon as you bought your last 20 shares at $237.
-if the stock dips $30 instead of rising, you buy your 10 shares at $197....10 more shares at $187, 10 shares at $177, and the remaining 70 shares at $167.....for an average cost to you of $173 per share.
-if the stock only dips $10 or $20, you still buy those 10 shares at $197, $187, and possibly $177 on the way down, then you continue the next buy at $207 and every $10 above that (or the rest of the shares at the first $30 dip from high point) until 100 shares acquired.
you could buy 10 shares every $10 up starting with the current price, until you own those 100 shares. (buying at 197, 207, 217, 227 etc). If the price of the stock keeps rising without a 30 drop, you would find yourself with 100 shares of a stock positioned above $287.00 with your average price of about $242 a share.
other scenario's of this scalling up buys:
If the price of the stock rises, and at some point dips $30. You buy in at every $10 up, (10 shares at $197...10 shares at $207...10 more shares at $217.... 10 at $227, and $10 at $237... at which this point the price drops about 30 dollars to $205 having you buy the remaining 50 shares at that price(or wait for a bit lower)....with your average price per share then being $211...
-this scalling in strategy, instead of waiting for the major dip, would have here cost you an overall amount of 6 dollars a share more then if you waited for the big dip and bought 100 shares at $205, but you get the benifit of having the full lot of 100 shares if the stock takes off without the dip.
-if the stock instead rose to the $267 buy-in point, then dropped about $30 to $235, your average cost per share would be about $233 as soon as you bought your last 20 shares at $237.
-if the stock dips $30 instead of rising, you buy your 10 shares at $197....10 more shares at $187, 10 shares at $177, and the remaining 70 shares at $167.....for an average cost to you of $173 per share.
-if the stock only dips $10 or $20, you still buy those 10 shares at $197, $187, and possibly $177 on the way down, then you continue the next buy at $207 and every $10 above that (or the rest of the shares at the first $30 dip from high point) until 100 shares acquired.
Quote from cashmoney69:
Whenever I see a nice.....it looks like it will go
Noticing that your links are Stockcharts, perhaps this might be helpful. When I (as a subscriber) first open Stockcharts in a browser, this is what comes up. It is just the Stockcharts canned default.
http://stockcharts.com/h-sc/ui?s=$INDU&p=D&yr=0&mn=3&dy=0&id=p69919816298
Have you ever considered even a basic "SAR" for encouraging or tempering the emotionalism of your entries? Apply the canned default to DE.
http://stockcharts.com/h-sc/ui?s=DE&p=D&yr=0&mn=3&dy=0&id=p69919816298
If I looked at this chart, I might do something like this. For a long, buy a 1/3 position at the entry point. If there's no pullback at least you're in. If within the first several days, you get a 1/4 to 1/3 pullback of the distance between the entry stop and the new exit stop, buy another 1/3 position. If it turns up from there, goes back up to the entry point and indicates upside follow thru, buy the final 1/3 position. But if the pullback goes to 50%, start to think caution. If it goes to 67% (simple fib levels), start looking to get out on any rise that the market may offer.
When to get out? Everyone wants to catch the trend but keep in mind that a _general_ rule of thumb is that a market trends +/-30% of the time and ranges for +/-70%. On this chart, 6 out of 7 signals have been good for at least 2 points. After today's action, if the market offered me $90,$91 I'd take it and wait for a better, more responsive trade. Everyone knows that stop discipline is a key attribute of success. An ET member, Gnome, put up a thread on 1-1-08 in Trading. Among his comments were, "the money I have is from the losses I didn't take" in referring to stop discipline.
http://stockcharts.com/h-sc/ui?s=fslr&p=D&yr=0&mn=3&dy=0&id=p69919816298
Buy 180? I don't think so. No sign of a bottom yet. This needs to have some up and down churning to establish a seller-buyer equilibrium. I have suffered some of my worst beatings from bottom picking and not having a system exit available.
Want a longer term outlook? put in weekly. In this case, I would call DE non-responsive with all the sell whipsaws on the way up. On the other hand FSLR has been very definitive.
Happy trading