Buying pullbacks is one of the most famous strategies out there. Everyone wants to buy at the low and sell at the high right? So is it actually a good strategy?
It can be very profitable if you buy a stock as it comes down a little. This is
especially true if the longer term direction of the stock is up. In fact some of the world’s richest people have made their money by buying after a pullback and selling later on when the stock was trading at a much higher price level.
But there is a dangerous side to buying low. If the stock keeps going down you have the potential to lose a lot of money. You might think a stock is done going down only to find that it still has another 60% downward move in it.
Since you can’t predict how far down a stock will go make sure that you use proper risk management strategies. Buying more then you can afford to lose is a recipe for disaster, especially in this unpredictable world, so position sizing is one way to lessens your risk.
Another method you can use is something called a stop order. This way you can buy the stock, but have a point of exit. For instance you might say if your position loses 10% of its value you get out and accept the loss.
Buying on a pullback can be profitable, but you do have to consider the risk and make sure you do cannot lose more then you are comfortable with.
For more tips to help you learn stock trading visit http://www.stocks-simplified.com/stock_tips.html
When I was young I wanted to learn how to trade the stock market. So I traveled around the country listening to professional traders talk about how they are making money in the market. Now I understand how easy it is to make money in the stock market and started a site http://www.stocks-simplified.com to help others learn.