Is Buy LOW & sell High misunderstood ?- YES !!
If one knew when the top and bottom would absolutely reverse to a substantial amount, all would be easy and thus all investors should be rich. It is said ( Buffet?) that fools go where winners leave. With the market down 140 and 100 (today) in the last 2 days, are we at the bottom ?- Who knows now ?- NOBODY. Yet there are some common rules that help one recognize & take advantage of tops & bottoms. The most consistent is that tops occur with blow out volume during a run-up. But what about the present short term 220 point drop -is it a a "bottom." ? My take is that bottoms occur when most are done selling and the volume will be low. ( even though there is plenty of money around looking for a winner.) An old statistical rule/way of determining this is that the swing need to correct about 1/3 before the reversal is likely sustainable. Now my math is good so if this theory works as it has for centuries. (/ Fibonacci?) .The DOW at 1:15 PM EST is at ~ 11400 or down 240. The magic number ( on the DOW) needed before an up recovery is confirmed is about 11470 to 11490. I used about + & - 10 DOW points from the actual # to remind one that precise numbers are not to be taken as the gospel. All prognosticators like to use disclaimers which would be: major crisis or changes in the rule of sanity. The essence of the above is to give up trying to pick the bottoms or tops and let the reversal have some momentum to confirm the potential reversal. Ones time frame for investing come into play in the above since in the long run we are all dead. Or over decades the markets as inflation are going up. We are in a many year secular BULL market so go with the flow- that will be up.
posted by Pete at 9:58 AM
2 Comments:
Dug., Thanks for the question. As a student of Math (a Math Minor) I enjoyed reading many articles of Fib's and have a general understanding of his original publications. However I have been curious about it's application in investing and find that it is "just?" above par VS the many other TA tools. It has been a struggle. It has not made me rich by any means. My take is that it is a reminder that one must at least get above short term variations/ranges or noise before one can have a bit more confidence that a significant turn around is occurring. I guess it has worked more in nature but less in financial markets which are more fickle? It is a TA's persons dream to find a number that works but the market is not mainly mathematical nor always sensible. One can hope for a few % advantage by applying TA but it is always hindsight. This makes some sense to me but not likely to many other more astute investors. A tool is a tool and all pros have more than 1 tool! Basically I would not live or die by any single TA nor the entire package of TA tools. Fib may be a reminder that moderation should be applied in all matters? Certainly irrational exuberance is not always at work. I'm trying but the journey is long !
Duguyishang, Thanks for reminding ne. I knew Fib. was a study of mother nature but forgot the rabbit part. I have evaluated Fib about a hundred times and found it to be about as reliable or unreliable as many other TA- not so good by it's self. It has not worked on this last 450 to 500 drop but we may not have stopped dropping yet. It may been better if I had not posted the Fib bit. No I am not pushing Fib. as an approach to investing decisions. Keep in touch.
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