The Bottom Picker’s Ultimate Nightmare
- Posted by TheArmoTrader
- on June 19th, 2011
Everyone would love to be a perfect bottom picker. Imagine how cool it would be to tell all your friends and co-workers how you caught the bottom of $XYZ stock and held it for a 25% winner. You would say something like “The Stochastics were way oversold and the stock was at support. It had to bounce and the shorts were bound to cover”. But here is the reality of bottom picking; being a bottom picker is not only nearly impossible, but it is also very, VERY foolish. Plain and simple as that.
As a former swing trader, it astonishes me that people try to pick bottoms. The risk/reward just does not favor you as a trader. Yes, the reward might be big, but here’s the thing: Nine times out of ten (not an official stat), that reward will never play out. You are assuming a lot of risk for the small chance that you might pull a rabbit out of a hat and catch the bottom. Why do that? This also not only applies to swing traders, but also day-traders and investors. We all try to bottom pick at one point or another. Heck, I tried to day-trade bottom pick $RIMM on Friday when it held 29 for a brief moment (but per my rules, I cut it quick when it failed).
And this brings me to today’s topic. Research In Motion Limited ($RIMM) reported earnings after hours on Thursday and it continued to hurt those bottom pickers. I remember before the numbers came out, that people were questioning if a lot of the bad news was already priced in. To me this is an excuse bottom pickers use to bottom pick. Without even looking at the fundamentals (which are on the downturn), the chart looks horrible and has looked horrible for months now (on a daily chart,the weekly has been looking bad ever since it topped in 2008). This alone gives you reason not to touch the stock. But the fact that it has been in a downtrend since mid-March gives you the ultimate reason on why not to touch it (on a non-daytrade basis). RIMM has been the perfect example of the ultimate punishment (or nightmare) for bottom pickers.
$RIMM - Research In Motion Limited Daily Chart
Just don’t bottom pick. Don’t do it. There are a million other better trade setups/stocks that you can trade. Just remember what the great minds have said in the past.
“Markets [stocks] can remain irrational far longer than you or I can remain solvent” -John Maynard Keynes
“Stocks are never too high to begin buying or too low to begin selling.” – Jesse Livermore
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Jerry Khachoyan is currently an undergraduate student at UCLA pursuing a degree in Political Science. He started trading in September of 2008. He concentrates on using technical analysis and reading the tape to enter the best risk/reward trades. The stock market to him is one of the greatest inventions by man.
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