“Bear markets have no supports and bull markets have no resistance.” -William EngTwo big mistakes new traders make is to short a monster stock at all time highs believing it has to go down or going long a stock in a death spiral because it just can’t go any lower. Unfortunately for them stocks at all time highs are the ones that historically tend to go higher and stocks at all time lows tend to go lower.
This is simply because over the long term capital flows into the stocks with growing earnings expectations and out of the stocks with declining earnings expectations. The big money is in the big move, it is in trading in the right direction. Buying into a stock in an uptrend either on break outs to new highs or after corrections or pull backs puts the odds in your favor. It difficult to make money on the short side of monster stocks because you are swimming against the river, why not ride a boat with the water’s current? Stocks in death spirals do have dead cat bounces and rallies on news but that is generally a place to go short not buy. Bottom fishing at lows is also bad odds because you are buying something no one else wants. Buying at all time highs after a break out of a trading range or continuation chart pattern is good odds because buyers have over come all sellers at that moment.
“Stock trading is rocket science, you find a rocket and ride it.” -Steve Burns
“Monster stocks have no long term resistance and stocks in a death spiral have no long term support.” -Steve Burns
This is what a monster stock looks like.
This is what a death spiral looks like.