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All of a sudden, there’s a gap in the chart of your favorite stock.
Surprise news, earnings, something unexpected caused a bout of extreme optimism or pessimism that resulted in the move.
If done properly, technical analysis can work up to 80% of the time. Granted, there is no Holy Grail, but if we use the right indicators, we increase our odds of success. Especially if we apply those indicators to well known stocks that may only be down temporarily.
Traders are often told to buy excessive fear or greed.
Unfortunately, many aren’t aware of when to actually pull the trigger, or realize when fear or greed have gotten way out of control.
But there’s a simple way to know exactly when to buy and when to sell.
It’s not about having the perfect strategy.
It’s about the rule you abide by with each trade.
One of the biggest issues facing all walks of traders is a severe lack of discipline and structure in stock buying habits. Many fail to use stop losses, or even protect gains with a simple trailing stop loss strategy. Others risk far too much.
If you pull a rubber band too far, too fast, what happens?
It snaps back, right? The same thing happens with stocks, indexes, and currencies. If they’re pulled too far in one direction, eventually they’ll snap back and revert to back to the mean. In fact, we see it happen all the time.
Buy low, sell high -- it’s an easy rule to follow.
Unfortunately, selling is often the hardest part.
“Jeez, if only I held that stock for one more day. I could have been up another $2,500” is often the thought process. What we fail to consider is that we made money. We accomplished the initial goal. Better yet, we didn’t lose anything.