CHARTPATTERNS
Outsider Speculation = Trading Blind
Bonanza Bottoms
by Scott Brown, PhD
TO succeed
in the stock market you must buy low and sell high. Why is this so hard
to implement for most investors? In this article, we'll find out by examining
the forces driving stock prices and how to identify the real deals in the
stock market, all through bonanza bottoms.
WHY BUY LOW AND SELL HIGH?
The only way you can get rich is to buy low and sell high or sell high
and buy it back low. You will be pitched many different strategies as an
investor, but wealth-building ones, as opposed to income-producing ones,
simply amount to acquiring an asset at a lower price than you sell it.
It's mainly due to your social wiring that buying low and selling high
is so difficult to implement. You have learned that when something you
buy is a real bargain it is most likely of inferior quality -- defective
or spoiled or out of date. This helps you as a shopper but hurts you as
an investor. But if something is priced high, we normally assume it is
of higher quality.
FINANCIALLY HARMFUL SOCIAL WIRING
Experienced investors buy stocks when the outlook for those stocks looks
bleak. In fact, when the stock market really stinks, like after a severe
bear market, successful investors go on a buying spree while the uninformed
public shy away from stocks.
So why does the stock market go up and down so much? There are three
major forces. The first is the inexperienced investor that reacts rashly
to the market's actions; second, corporate executives who force their boards
of directors to "gift" them with employee stock options for low prices
after a market crash. These managers then dump their options at stellar
prices after they hype the price up. The third and last force driving the
market is pools of investors who buy stock low to corner the float to force
up the price and sell high.
...Continued in the June issue of Technical Analysis of STOCKS &
COMMODITIES
Excerpted from an article originally published in the June 2007 issue
of Technical Analysis of
STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2007, Technical Analysis, Inc.
Return to Month 2007 Contents
