Whenever I look at a chart and see a nice up trend or down trend, I feel like I need to wait for a pullback or else I'm both foolish and impulsive to be buying the possible top. How do I get around this mental block...anyone else feel the same? In my mind FSLR ( http://stockcharts.com/h-sc/ui?s=FSLR&p=D&yr=0&mn=7&dy=0&id=p90893460114 ) looks like a better buy because it came down some, even though it looks like it will go lower.
What you need to do is find something that you could use as a trigger. Something like: closing above a previous peak; a stochastic cross; MACD crossing 0; or even two moving averages crossing; BUT find something that triggers you entering the trade. Implement your exit strategy and problem solvered. Let something objective make the decision and you just place the orders.
I think it's always a good idea to wait for a pullback because you can evaluate how the stock and the volume behave on falling prices. If volume is low and there is a constant bid even on falling prices I'd say that's a strong indication that it's just a minor pullback. If you buy into extended strength you risk having to wait out the next pullback, and having to evaluate its characteristics while you're in the position.
all systems ive worked on (thats not many though) have a trough indicator (e.g. MA has fallen in the last 10 days), so signals come when a good trending stock is having some weakness. something that i have been thinking about lately is designing a system that buys- shares in up trend (trend following) and entry on weakness (using counter-trend indicators e.g. dip buys, 3 days down etc.) might prove worthwhile. if your a discretionary trader with no interest in a systematic approach then pretend i said anything.
Your instincts are correct. You generally should NOT be buying into momentum, and should wait for a more favorable entry. So you don't have a mental problem. Well, you may, but not in this regard.
I agree. Buying the dips in a trending market is proven to be profitable. Also, I find sentiment indicators very compelling.
I disagree with everybody..lol Buy it upon breaking the highs. I have no mental block with buying new highs or selling new lows. But I do have mental problems in general...one of them being OCD..I must check my doors 3 times before sleep to make sure they are locked! buying the new highs in August or November would have had you feeling mentally charged..not blocked. Have stops will trade...
Case in point, my trading strategy involves eating crayons and facilitating the fulfillment of the prophecy.