This is Your Most Important Trading Decision…
Regardless of what method you may use to form your trading decisions — fundamentals, technicals, or even a dartboard – you’ve been taught to look for buying opportunities.
If I had to bet, I would guess that 99% of investment education is focused on when to buy a stock. But sometimes, knowing when not to buy can be your most important trading duty.
Today, I want to show you a real world example of how knowing when to stay away from a potential trade could have saved your portfolio from getting ravaged.
Rewind a few weeks to the end of June, when I wrote a column responding to a reader’s questions about Ford (NYSE:F), the auto-making giant (you can read the original column here). I pulled up a chart of Ford, taking a look at the trading setup that was forming in shares:
At the time, Ford’s stock didn’t look terrible. But technical analysis gave us a couple of simple rules about buying Ford: a push above $10.75 (the blue horizontal line) was our buy signal, and anything else told us not to buy. In fact, a slide below “support” at $10 was a signal to sell or even to short the stock.
There were plenty of reasons to like Ford. It looked like its price was finding a bottom. It was starting to look cheap again. It was building better quality cars than it had in a generation.
But by identifying when not to buy, even the biggest Ford fans would have stayed away from the stock until a breakout above $10.75.
So, what happened in the month since? Ford dropped like a rock. If you tried to beat your fellow traders to the punch by picking up shares before a clear-cut breakout, you would have been stuck with a losing trade. Here’s what shares of Ford look like today:
Since that article, Ford has fallen close to 12%– a single-month drop that would have been painful to anyone who thought they were getting shares at a bargain price. They’re an even bigger bargain now. Adding insult to injury, the S&P 500 index has climbed almost 4% over that same period.
By following the simple technical analysis rules of when not to buy, you could have spared yourself a nasty loss. Over the next few weeks, we’re going to provide you with some of the technical tools you need to make those sorts of determinations on your own investments – stay tuned to the Sleuth find out how.
In the meantime, stay the heck away from shares of Ford…
Start your free Tomorrow in Review email subscription...We Will Not Share Your Email Address
We Value Your Privacy