| There are often times that we may not take a buy signal. This could
be because we are totally invested and do not have any cash to take a new position or we
may not like the look of the particular stock chart that is signaling. At other
times it may be because we simply did not see the stock or signal until after it had
occurred. We later find that the original buy signal did not yet move above a level that
would prevent us
from yet acquiring it.
There is a decision made at that time to take a position in the stock IF ...
it makes a technical move that is reasonable to conclude that it would be profitable to
trade now.
From a personal perspective, I do not like to buy a stock that has moved
more than 10% (approximately) past it's buy signal as I use "chase" stocks.
By that I mean that I would find a buy signal that I missed, but would see
the stock was trading very well since then and it would have been wise to
have bought it. Having seen this often, motivated me to trade on greed,
with the belief that it would keep going up. However, since I had not yet
become a technical traded or developed a stomach for losses, when I would
grab the stock and it would make a typical roll back of 10% or 15% I would
get squeamish and have to sell my hand at a loss.
This is not to say that you can't make money on stocks that have gone up 25%
past their signal, but rather that if you buy it here and it would slide
back 10%, the original system trade is STILL making 15% while YOU are losing
10%. That trade may very well go on to make a great deal, but you are going
to look back and ask yourself how in the world you lost money on a trade
that the system did great on. |
If you are going to trade using a mechanical system based on technical
indicators, then you must stake your claim when the signal is presented ...
OR when the NEXT meaningful technical activity occurs.
Therefore, after many such lessons, with high tuitions as I came to justify
them, I realize that I would have to make a rule for myself NOT to try
buying a stock if it had risen more than 10% since the first eligible
purchase date after the buy signal was generated.
These "later opportunities" have come to be called Secondary Buy signals and
will be shown as Green Lines on the charts extending from the point that their technical
merit is based on.
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