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Buy on Weakness
A proactive trading strategy in which a trader takes
profits by closing out of a short position or buying
into a long position. This strategy is used when the
price of the asset being traded is still falling but is
expected to reverse and move against the trader. This
is the opposite of "selling into strength".
For example, let's say that a trader believes that ABC
stock will fall below $5.00 to $4.50 before rising above
$5.00. Therefore, the trader would buy into the
weakening stock price at a price below $5.00 and wait
until the falling trend reverses and the price rises
before selling and taking a profit. A short seller
may also buy weakness by closing out his or her
position. This would be done by buying into a falling
stock with the anticipation that the stock price will
soon reverse and start to rise.
Many traders will wait for confirmation of a change in
price movement before reacting. However, by the time
a reversal is confirmed, it may be too late and the
trader may end up losing. Thus, by trading against the
prevailing trend in the anticipation that it will soon
reverse, the trader allows him- or herself a greater
margin of safety. As the saying goes, "missed money is
better than lost money".
A proactive trading strategy in which a trader takes
profits by closing out of a short position or buying
into a long position. This strategy is used when the
price of the asset being traded is still falling but is
expected to reverse and move against the trader. This
is the opposite of "selling into strength".
For example, let's say that a trader believes that ABC
stock will fall below $5.00 to $4.50 before rising above
$5.00. Therefore, the trader would buy into the
weakening stock price at a price below $5.00 and wait
until the falling trend reverses and the price rises
before selling and taking a profit. A short seller
may also buy weakness by closing out his or her
position. This would be done by buying into a falling
stock with the anticipation that the stock price will
soon reverse and start to rise.
Many traders will wait for confirmation of a change in
price movement before reacting. However, by the time
a reversal is confirmed, it may be too late and the
trader may end up losing. Thus, by trading against the
prevailing trend in the anticipation that it will soon
reverse, the trader allows him- or herself a greater
margin of safety. As the saying goes, "missed money is
better than lost money".