Posts filed under “Technical Analysis”

Why Buy-And-Hold Strategy Doesn’t Work for So Many Investors

Interesting IBD lecture on why Buy & Hold can be so costly, and how to use charts to avoid disaster stocks:

-You buy a
stock. Soon, the market suddenly starts to decline on heavy volume.

-Watch what the stock does.

-A pull back to its 50-day moving average in quiet trade, is an okay sign to stay long that name.

-On the other hand, when a stock that "slashes through the support line on heavy turnover," that’s a red flag.

IBD adds:  "Did
the stock trigger any other sell signals such as a downward reversal,
the largest decline since its breakout or a 7% drop below your buy
point? If so, it’s a good time to unwind your position."

click for larger chart

Gateway_incThe example IBD uses is Gateway computer. Its stock soared 3,500% from
the low in 1994 to its all-time high of 84 in 1999 (point 1).

then started its long decline. It went into a free-fall in November
2000, suffering a 63% loss (point 2). Volume was 65% above average
(point 3).

This alone should have been a sell signal for
investors. And the fact that the market entered a bear period should
have alerted them that this decline could continue for a while.

the time March 2003 hit, the stock lost all its gains and more (point
4). After some attempts to rebound, it is now still trading around 2.

Buy-And-Hold Strategy Will Often Backfire
Marie Beerens
Investor’s Business Daily, Friday March 24, 7:00 pm ET

Category: Apprenticed Investor, Investing, Psychology, Technical Analysis, Trading

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