Why You Should Never Buy Stocks On The Way Down
There’s an old adage in the stock market that says to buy low and sell high. That, of course is an irrefutable truth. The only problem is that many investors confuse this bit of conventional wisdom with the assumption that if the price of a stock is dropping it is low and if it rising it is high. Consequently, they buy stocks on the way down, and sell on the way up. There is hardly a worst thing an investor can do.
Stocks are bought on the expectation they will go up. If the price of a stock is going up, that expectation is being fulfilled. When it is going down, it is denying that expectation. Therfore, it makes sense to buy a stock on the way up. One of the best times to buy is when a stock has broken to a new high on volume bigger than the day before.
Breaking to a new high means there are no unhappy holders who are waiting to sell the stock. If the stock is fairly valued, there should be clear sailing ahead.
