Very often, traders like to bottom fish stocks. This is where you are buying a stock that has fallen for a while and seems to be out of favor. Sometimes this strategy can work as you could be buying a stock on sale before the institutional crowd starts to move it again. This is something that I like to do myself providing I can find a larger time-frame support area with a larger time frame trend that signals institutional sponsorship.
It is not wise to try and buy stocks that are making new all time lows on a chart. When a stock is making a new all time low it does not have a past support level to trade against. Remember, it is the institutional money that moves stocks, not the individual trader with an E-trade account buying a couple hundred shares. Think about this, when a stock makes a new all time low the only floor or support in the stock is zero. Now please understand, many stocks can trade at low levels for a long time before going bankrupt. They can even stage some dead cat bounces from time to time that will bring in some traders and investors, but catching these short term moves are tough to do.
The best way to play a stock when it is making new all time lows is to wait for it to rally above a prior resistance level. Then sit back and look for a bullish chart pattern to form. Once a bullish chart pattern is formed you can buy the stock with a stop loss below it’s recent low. At least, this will provide the trader with a stop loss and limit the risk that they are taking. After all, the secret to trading is to find the lowest risk with the maximum amount of upside.
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