Planning a technical trade?
You’ve got your chart open. Scrip’s been falling.
You plan to initiate a buy on that last support. Still a few percentage points to go.
Your buy point seems a bit off, right?
Scrip might not reach it, huh?
It might just take off before reaching your buy point, hmmm?
What you need to understand is this – for nothing comes nothing.
You don’t want to risk a buy at current market price. That’s a fact. An acceptable one. Fine … as long as you are willing to pay the price for this fact.
The price is that you might not be in the trade as the scrip might take off without your stop-type trigger entry price being hit.
The up-side is that the scrip might correct to your buy price, triggering your entry, and thereby giving you a perfect technical entry point, along with a great margin of safety, since you’ll then have bought low as compared to current market price.
Yeah, that’s the trade-off.
Is this trade-off acceptable to you?
Fine. In my opinion, you would not be doing anything wrong in going ahead with your planned course of action, as long as you have mentally accepted the trade-off.
What’s the other guy at? You know, the fellow who’s entering at current market price. Well, he’s taking a risk. He’s buying a little high, without margin of safety. What’s his trade-off? For starters, he’s in the trade. Scrip can take off immediately for all he cares, leaving you behind. He’ll be most happy. What’s his down-side? Scrip can correct to technical support, your buy-point. He’ll already be in a losing trade, and you’ll be just entering. In his worst-case scenario, his stop will already be hit as you are just entering. If the scrip takes off on him now, he’ll probably be puking. Yeah, that’s his trade-off. He’s accepted it mentally. After such acceptance, in my opinion, he’s doing nothing wrong by entering at current market price.
What’s going to happen?
No one knows. Either of the outlined scenarios can play out.
Who’s that last technical correction left for? Yeah, who or what exactly will be responsible for that last technical correction?
An event. A negative one.
At this point, a negative event can happen. On the other hand, it may not happen.
If it happens, the scrip will very probably open at the technical buy point the next day, and your buy will be triggered.
If there’s no negative event, and buying pressure goes up, the scrip will take off without you.
Why is that last bit left to an event?
Events give prices a push or a pull, depending upon their positivity or negativity.
That last support was made a bit low, right? You were wondering how the scrip reached so low, huh? In high probability, an event pushed it low for a few hours, and a low was made. If this low coincided with a past low, one started to speak of a lowish support, which was a little low considering current market price, and for which the scrip needed a pull-back to reach.
Like this morning’s pull-back. The US decides to allow air-strikes in Iraq. Japan opens 3% down. India opens 1% down.
A lot of scrips open really down this morning.
Some of them even open at lowish supports they were not (at all) intending to touch yesterday.