Extract from article by Catherine Davey (Investorweb).............for
debate
Buying high is a contradiction of the old philosophy of buy low sell
high. However, in some instances buying at the highs can be not just
the only option to enter the market, but the most prudent approach.
The idea of buying at the highs is based on the concept that a trend in
motion will tend to stay in motion. This means that once a market finds
direction, it will keep travelling in that direction. Thus
trend-following systems aim to catch the trend as early as possible and
ride the trend until it ends.
Although it has a rather unpleasant connotation, the saying "people
who pick bottoms get smelly fingers" is very apt. There are two ways
to buy a stock - at support when it retraces on a downtrend, or after
resistance when it has breached an old high. Bottom-pickers are
contrarians. They attempt to second-guess the chart and jump in before
the new uptrend has been confirmed. What bottom-pickers are actually
doing is defying the rest of the market. This can be a deadly exercise
because regardless of whether you believe in charting principles or
fundamentals, the price of a stock is always just a reflection of
investors' opinion. Bottom-pickers do not believe in this basic
tenet, and are instead convinced there is something more magical or
mysterious about the vacillations of stock price.
BG
(full article at
www.investorweb.com.au
)
See IRG research reports
