It works if you know what low is ?
If stock X is at 10.00 and has been trending $8,$9, now $10 based on good earning news that just came out. Is $10 the new low, the base on which you see it go to $12 or $13 ?
Was $8 the low, but you are buying against the uncertainty of downside risk should earnings come out different.
By this argument $10 is the new low because it is a fair price on which uncertainty has been removed when good earnings came out. But then you see people sell on the news, soon $10 you paid will get cheaper back to $9 and you wonder what happened ?
Should you then hang on to the $10 stock which is trading at $9 know it is a good stock affirmed by good earnings and outlook. Then the market turns and good and bad stocks get degraded likewise. Now you want to do yoga instead.
