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…

Happy trading,

Jonas Elmerraji

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Jonas Elmerraji

Jonas Elmerraji, CMT, is the co-editor of STORM Signals and Penny Stock Fortunes, and a contributor to Agora Financial’s Trend Playbook. Jonas got his start on the fundamental side of the market, poring over financial statements and valuations to find sound investments – today, he specializes in blending fundamental and technical analysis. Jonas is a senior contributor to TheStreet.com, and has been featured as an investment expert in Forbes, Investors Business Daily, and CNBC.com among others. 

Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

View articles by Jonas Elmerraji