We're on the hunt for great stocks & big profits here at the goodBUYreport!
The crypto trading action with Bitcoin (BTC) - even though it's not a stock - offers us a great solution to a common traders' dilemma.
The dilemma is this: do we "buy the dip" on a trading idea that had a great, near-parabolic run a few months earlier (and might be setting up for another)?
Or by doing so, are we setting ourselves up for a bigger loss - or possibly the better trade is to go short - as that once hot stock (or crypto coin) slowly fades away - i.e. the classic "slope of hope."
Watch the video or keep reading below!
It's a tough decision for any investor or speculator.
The stress of putting in a trade is often made worse because - when we turn on CNBC - what's the classic mantra that every strategist and analyst utters when his/her favorite stock or sector has been knocked down 10-20%?
"Buy the dip."
Of course, if that "dip" becomes a more serious decline, guess who's left holding the bag?
The "Show Me" Strategy
So here's the solution that I've used for many years to enforce discipline in my own speculating activities. It helps me sidestep trading setups that might look tempting, but could also be a trap instead.
In a nutshell, I wait for the stock (or in this case, Bitcoin) to make a new near-term high.
That might seem like a Captain Obvious statement.
On the other hand, we're at our most vulnerable to big losses when chasing after a trading idea that's already had a great parabolic run.
With the "show me" strategy, I'm essentially saying to the market "If Bitcoin (or xyz-stock) is such a great buy at this moment, show me - by bidding the stock up to and slightly beyond a previous "old high" before I'll join the parade.
So here's the level I would be watching on Bitcoin before considering a purchase...
Note that Bitcoin is also trading underneath the blue line - the coin's 200 day moving average (and another classic technical analysis no-no).
So for good measure, one could also sit back and wait for the coin to move through that resistance level as well before making a purchase.
If you don't believe me - that this strategy can save you from making untold numbers of expensive trading mistakes, look at the chart below of Bitcoin in 2019-2020.
At the time, Bitcoin was undergoing a steady downward trend, punctuated by occasional sharp spikes to the upside. I've marked each "near term high" - each one lower than the last - in red.
Or for an example in stocks, look at the trading action in QuantumScape (QS) - a stock I recommended in an online trading seminar last year at $14 and recommended for a quick 171% profit in a month or so (it subsequently rose to more than $100).
But in the selloff afterward, the "Show Me" strategy would have saved traders lots of unneeded heartbreak:
Of course, NONE of this is guaranteed. Nothing ever is in the stock or crypto markets.
Plenty of stocks, having declined a good chunk, will rally back up to an old high and linger just long enough to convince unwary traders that it's the "real deal" - and then mount yet another heart-breaking decline.
But the point of the Show Me strategy is to put some discipline into our trades before attempting to "buy the dip" in a stock or coin.
Otherwise, it's far too easy to get into a terrible habit of convincing ourselves that a stock or coin just has to move higher (because it's fallen so far already). So we buy. Then the stock or coin falls 10 or 15%, so we sell. Then it makes another sharp rise (but not to a prior near-term high), so we buy again.
On and on it goes. Before we know it, we've destroyed our confidence and our trading/investing accounts.
Use the "Show Me" strategy to keep more money in your account, and stay alert for trading & investing opportunities where the odds are on our side.
Best of Good Buys,